It’s been an interesting start to 2017 with a much tighter credit market than what we have seen for most of the last decade. While the majority of the media have been concentrating on the fact that the market seems to have slowed since the 40% deposit rule introduction, I put more down to banks themselves pulling back in regards to their willingness to lend and interest rates moving up.
Over the last 6 months or so there has been a large change, where the banks have moved from prioritising the growth of their market share to being more interested in growing margins. This, in a lot of ways, has been a result of it being harder for them to access capital especially in the wholesale markets.
The majority of banks now have clear pricing differences when lending on investment properties in comparison to owner-occupied dwellings, and in some cases small fees are now being charged. Obviously this is a big change to what we have got used to with large cashbacks, TVs and holidays being thrown out.
Auckland is going to continue to have supply issues for a long time which will put a floor on how far house prices can come back if there is a correction, as migration continues at record numbers and we simply don’t keep up in regards to new build levels. The gap is only going to widen further with Bank Property Funding Units (which handle mid to large development funding) effectively being shut for business at the moment. Expect to continue to hear about more cancelled developments moving forward, with the lack of available credit being a dominant reason for this.
With the aforementioned PFUs pulling back, demand has increased significantly in the non-bank markets with finance companies having to pick up a lot of the slack. With most of these having access to minute amounts of capital (in comparison), many have run out of funds already or are cherry picking the best low LVR deals. Last week I completed a $1.9m transaction which has taken the best part of six months to get across the line and which was turned down by circa 10 companies before finding a willing funder. If I had taken the same transaction to the market 12 months ago, I have no doubt I could have easily funded it even at an LVR 10% higher than what this was originally settled at.
Keep an eye on what is happening in Australia. Their funding regulator has just put in place restrictions that interest-only lending has to be capped at 30% of total new residential mortgage lending as well as caps around the amount of investment lending that can be done. I recommend keeping an eye on Tony Alexander’s commentary as he has recently been talking about credit becoming harder and harder to get. On that point, on the 3rd of May an event coming up which is worth attending is Tony talking with Matthew Gilligan in regards to the economy and property investment.
I have been saying it for a while, and in many cases it is now too late, but it is worth reviewing your current situation in regards to interest rates, maximising revolving credit facilities and restructuring debt to put yourself in the best possible position. If you would like a chat, please fill out the form below and we will be in touch.
Property Update Webinar
I recently participated in a webinar with John Rowe from Gilligan Rowe & Associates and Mark Honeybone from Property Ventures. We commented on the current state of the market and issues that you need to be aware of. To view a recording of this webinar, please click HERE.To contact Kris Pedersen Mortgages, please fill out this form: