Over the weekend the National government announced changes to their housing policy, to support first home buyers as we approach the long anticipated introduction of LVR (loan to value ratio) restrictions on bank lending by the Reserve Bank.
Availability was increased for the KiwiSaver First Home Deposit Subsidy scheme, where the government assists certain qualifying first home buyers in coming up with the deposit for a house. There are a number of parameters to this scheme which have been altered and this will be effective from October 1st.
A couple of examples are an increase in the income limit to $120,000 from $100,000 per couple, in order for that couple to qualify for a maximum $10,000 government subsidy towards a house deposit. There was also an increase of price caps on home values that can be purchased in this scheme, for example from $350,000 to $485,000 in Auckland and from $350,000 to $425,000 in Wellington and Queenstown.
These changes are forecast by National to lead to an additional 5,000 of these deposit subsidies being granted over each of the next four years, which is double the current volume.
Price caps were also increased by the same amount for the Welcome Home Loan scheme, where the government underwrites mortgages for certain eligible borrowers. This is a small scheme at present, catering for only 850 loans last year, but it is hoped this will grow to 2,500 per year.
What does all this mean for our housing market?
The short answer is not much.
The reason is that the forecast extra 5,000 subsidised deposits per year is ultimately a relatively small amount in the context of the NZ housing market where there are around 80,000 dwellings sold a year at present.
Put another way, the changes are expected to cost the government $16 million a year, again a modest figure.
And remember that the changes are designed to partially offset the restrictions that will soon be placed on banks ability to provide low-deposit loans to customers. We estimate that these changes to LVR regulation by the RBNZ could reduce the annual volume of high LVR loans (with loan-to-value ratios above 80%, meaning a deposit of less than 20% of the house value) by as much as 10,000 high LVR loans per year from, from current elevated levels.
If we pull these policy changes together, we believe that the net result of the changes to deposit subsidies (estimated to bring another 5,000 such loans a year), Welcome Home Loans (+1800), and LVR regulation (-10,000) could mean a few thousand fewer mortgages in NZ than would otherwise have been the case. (Note the categories are not mutually exclusive, hence this is a somewhat crude estimate).
Thus, although these changes will be financially very important for those individuals who are impacted by the new limits and can now access these schemes, they are unlikely to materially impact overall buying activity in the housing market.
We still see a positive outlook ahead for the NZ housing market, but this continues to be driven by a lack of housing supply in key major centres, low interest rates, and a broadening economic recovery.