Market turmoil: Mark Lister on plunging global stocks
First home buyers relying on KiwiSaver funds to settle offers under contract could be hit by the falling stock market, a mortgage broker says.
Bruce Patten, a Loan Market director who has written more than $1b of home loans since 2002, said he was concerned about some high loan-to-value ratioborrowers now about to settle contracts.
"This is a good issue to bring to the forefront for people to think about. If there is a widespread market correction, you would expect that means less in KiwiSaver for some. There's a real possibility there could be people who can't settle because the bank won't give them any more. Their KiwiSaver has dropped, they can't borrow from family or friends and some settlements might not go ahead," Patten predicted.
In New Zealand eligible investors are able to use KiwiSaver funds to put toward the purchase of their first home. They need to leave a minimum balance of $1000 in their KiwiSaver account.
It takes around 10 working days to process a KiwiSaver first home withdrawal application and the money is usually paid to a solicitor who then forwards on to the vendor on settlement day.
The first home buyer could run into difficulty if the balance of their KiwiSaver account fell to an extent that they could no longer rely on it to meet the payment terms for their new house. They would therefore need to find the money elsewhere.
Global stocks plunged as a panic that began in the oil market made its way through the global financial system, adding to concerns from already rattled investors about the state of the global economy due to the coronavirus outbreak.
Patten said one older client had mentioned to him in the last day how her acquaintances were worried about KiwiSaver fund balances falling. But she had not seen hers drop. Patten had told her that because she had invested in more conservative funds, less at risk of suffering from any market correction.
But that might not be the case for many first home buyers, he said.
"It could be a very real issue for some people. There is a real chance people who went unconditional before the market drop now won't have enough money. If they can't settle, the vendor could re-sell the property, sue the buyer and keep the deposit. But I hope the banks might try to assist people in this position via an overdraft with perhaps accelerated repayments," Patten said.
One Auckland first-home buyer who had recently used KiwiSaver funds to purchase a house said those who previously could afford a $750,000 house might now only be able to afford $700,000 due to KiwiSaver account adjustments.
Westpac chief economist Dominick Stephens expects the main economic impact of coronavirus to be felt in the second quarter of this year.
"The currently rampant housing market is likely to skid to a halt, with price growth slowing sharply in the June quarter," he said.
A slower housing market would hit consumer confidence and spending.
"That, combined with job losses and lower farm and business incomes, will have a secondary impact on consumer spending that could last longer than the immediate disruption of the virus."
