The Reserve Bank's latest lending restrictions on property investors could see nationwide house sales fall as much as 25 percent in a year, but the effects would be temporary and won't help curb house price growth in Auckland, says private economic consultancy Infometrics.
Last month the central bank indicated it would extend mortgage lending restrictions on Auckland property investors to the rest of the country, requiring a bigger deposit and reintroducing a uniform national cap on highly leveraged owner-occupier mortgages. At least 95 percent of banks' lending to investors will require a 40 percent deposit, and the 10 percent limit for owner-occupiers wanting to take out a mortgage with a deposit of less than 20 percent will be restored.
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Infometrics said in the nine to 12 months following the implementation of the new LVR restrictions on September 1 this year national house sales could fall by between 19 and 25 percent, mostly due to the tighter rules around lending to investors. It anticipates the new lending rules are likely to have an impact of a similar magnitude to the first round of restrictions introduced in 2013 when the Reserve Bank imposed a 10 per cent limit on lenders writing residential mortgages with a deposit of less than 20 percent.
The Infometrics modelling anticipates sales activity in Auckland being reduced by between 8 and 14 percent over the same period, which should slow house price inflation in that city by between two and four percentage points. The economic consultancy said that won't be enough to improve housing affordability with Quotable Value figures out today showing property values rose at a 16 percent pace in Auckland.
"As with the previous LVR changes, we expect the effects on the housing market to only be temporary," Infometrics chief forecaster Gareth Kiernan said. "In Auckland, in particular, the demand and supply equation remains profoundly out of balance, and further significant and sustained increases in residential building activity are necessary before house price inflation can be brought under control."
Infometrics said the housing market outside Auckland doesn't have the same undersupply issues so isn't as resilient to policy changes, but fundamental drivers such as population growth means housing market activity should stay strong once the new LVRs "have worked their way through the system."