Signs of Restrictions on High Loan To Value Loans Appear

The Reserve Bank confirmed back in May that by dipping into a newly created toolbox, it intends to increase the amount of capital the Banks have to hold to cover lending at Loan To Value ratio’s (LVR’s) over 80%. Given that lending above 80% LVR makes up about 20% of home lending and perhaps more importantly 30% of new lending, its hoping that by doing so, some of the current “exuberance” may ease at the margins of the (read Auckland) property market.

Translation, the cost of these loans will go up for low deposit home purchasers.

In an extremely unscientific analysis, scanning back thru ones memory bank of recent loans over 80% to 1st home buyers, next to every one of them has involved in part, a gift or interest free loan from Mum and/or Dad. You wonder then if a side effect maybe that Parents should prepare for a larger tap on the shoulder with respect to house purchase deposits as the kids attempt to avoid increased loan approval fee’s. 😉

And while these Reserve Bank changes are expected to be formalised in September we have seen ASB and Sovereign move in advance today by announcing that from Monday the charging of Low Equity Fee’s (LEF’s) on lending over 80% will recommence. Fierce market competition had meant that in recent times these fee’s were being reduced or waived.

Also getting a tweak is the set interest rate used to determine an applicants loan affordability from 6.0% to 6.50%. The net effect of this is that the amount one can borrow on any set income just reduced.

OCR remains unchanged at 2.5 percent

The Reserve Bank today left the Official Cash Rate (OCR) unchanged at 2.5 percent.

Reserve Bank Governor Graeme Wheeler said: “Reflecting the balance of several forces, we expect annual GDP growth to accelerate to about 3.5 percent by the second half of 2014, and inflation to rise towards the midpoint of the 1 to 3 percent target band. Given this outlook, we expect to keep the OCR unchanged through the end of the year.”

The Auckland property market got a repeated warning in the form of “In the meantime rapid house price inflation persists in Auckland and Canterbury. As previously noted, the Reserve Bank does not want to see financial or price stability compromised by housing demand getting too far ahead of the supply response.”

I’m keeping an eye on rising bond yields in the United States as a result of “tapering” concerns.

A House Buying Auction Strategy To Die For

I’m not sure exactly, but i estimate over the years i have witnessed possibly in excess of 1,000 house auctions. As a result one sees all sorts of methods of tackling an auction.  Right through from the hands remaining firmly in the pockets and say nothing method, to a more bullish approach of starting the Auction off high and trying to scare the other bidders off early.

Given recent media attention to the strength of the Auckland housing market, and commentary of folk “missing out” at auctions, Wednesday will go down as one of the all time most unusual auction strategies that i have seen, although not one that could be recommended to many, if any. 😉

Up for Auction was 135 Mt Albert Rd in the city fringe Auckland suburb of Mt Albert, which appeared to have possible development potential given it was on a north east facing site of 1516 sqm. The auction opened with a bid from the floor of $700,000.

A counter bidder seated upfront calmly elevated his arm raising the order of sale aloft to take the next bid. To the surprise of many, including myself and a somewhat startled auctioneer, he then left his arm aloft thru the entire auction which was moving in $50,000 increments until he held the top bid at $1,500,000. Talk about sending a confident signal to the other buyers in the room. Not long after some of the under bidders had picked their jaws up off the floor, the property was knocked down to him at $1,580,000.

Oh to have the confidence and financial wherewithal to bid in such fashion hey….