When you're considering residential property investment, how easily you can access housing finance is one of the biggest considerations. Property investment around the country may have been given a reprieve following the RBNZ's latest cut to the official cash rate, but the latest housing confidence report from ASB indicates that lending conditions could get slightly trickier in the near future.
Off the back of its decision, the reserve bank has emphasised Auckland's burgeoning property prices are an area of concern for the future. ASB notes that the bank will continue to monitor performance in the property market for many reasons, with financial stability being the primary one. Households with high levels of debt are extremely susceptible to monetary policy decisions and unexpected loss of income – especially when it comes to interest rates changes.
Auckland's rebounding house prices aren't likely to ease their concerns, the report said. As the ratio of house prices to income rises, so to does the risk of a pullback in the housing market in the case of sudden economic slump.
According to ASB, rising threats of an economic downturn means that the RBNZ could announce new loan-to-value ratio restrictions or prudential measures at any point over the next few months. As such, ASB advises home buyers to expect the unexpected. Property investors in particular could be on the receiving end of targeted measures, which is something to discuss with your Authorised Financial Adviser.
Regional lending restrictions are also a possibility given Auckland's insatiable demand for property, but the report states that these tools would be a challenge. In any case, the report notes that house prices relative to incomes have risen all over the country, despite being most acute in Auckland.
"Regional restrictions would be difficult to implement and monitor and have the potential for some unintended impacts, such as skewing construction and demand to areas just outside the region, rather than stimulating construction within the region," the report said.
Here's to your financial independence!
Daniel Carney
Authorised Financial Adviser / Investment Property Expert