Plummeting house sales prompt call to exempt first-home buyers from LVR restrictions

LVR restrictions, limit the amount of lending banks can do to borrowers with small or non-existent deposits.
LVR restrictions, limit the amount of lending banks can do to borrowers with small or non-existent deposits. Photo credit: Getty

There are calls to exempt first-home buyers from lending restrictions as the number of houses going under the hammer plummets.

There were 24.5 percent fewer sales nationwide in July compared to the same month in 2016 - 30.6 percent fewer in Auckland, according to new data from the Real Estate Institute of New Zealand (REINZ).

"A key reason for this is that the two biggest hurdles to purchasing a house right now are access to finance as the banks continue to tighten their lending criteria and LVR restrictions," said chief executive Bindi Norwell.

"This creates an intimidating barrier to entry to the real estate market, particularly for those saving for their first home."

LVR, or loan-to-value restrictions, limit the amount of lending banks can do to borrowers with small or non-existent deposits.

"The LVR restrictions have done their job of slowing the market, but now it seems they are acting as a handbrake which is why REINZ is calling for LVRs to be reviewed for first-time buyers," said Ms Norwell.

The data is backed up by figures from real estate agency Harcourts, which reported a 19 percent drop in sales. CEO Chris Kennedy said it was the combination of the LVR restrictions, foreign investors having trouble getting their money out of their home countries, and the two-year bright line rule.

First-home buyers are having to save up deposits that in past years, would have been enough to almost buy a property outright.

Year-on-year price change map.
Year-on-year price change map. Photo credit: REINZ

The lack of sales has seen the number of houses on the market rise. REINZ data shows there were 2648 more houses for sale in Auckland last month than in July 2016, an increase of 49 percent, while Harcourts has it at 43.5 percent.

It's also taking longer to sell them - REINZ says nationwide the average rose from 31 days to 35.

Harcourts also reported a 60 percent drop in auctions, despite the advantages such a method provides for sellers.

"Set a price on your property and you have set a limit," said Mr Kennedy. "Buyers enter negotiations with the goal of buying the property for as far below that price as possible."

But are the LVR restrictions working?

It's taken a few years, but the LVR restrictions appear to be working in Auckland. After years of skyrocketing prices, values appear to have stabilised. REINZ data has the median price now at $830,000, down 1.2 percent in the past year, while Harcourts has it at $996,504, also down 1.2 percent on its 2016 numbers.

"While the median house price for Auckland has fallen slightly, the housing shortage coupled with the increased population growth means the City of Sails is likely to be protected from significant price decreases in the short term," said Ms Norwell.

Elsewhere prices are still rising, with REINZ data recording 7.5 percent growth across New Zealand. Overall, it adds up to a 1.2 percent nationwide rise.

"With the majority of the country experiencing price rises and four regions experiencing record prices, it shows that demand is still strong across significant portions of the country," said Ms Norwell.

"Most notably this growth is seen in provincial towns rather than the bigger cities - much of this can still be attributed to people looking to exit the bigger cities for more affordable and relaxed lifestyles."

Those four regions are:

  • Northland - up 23 percent to $455,000
  • Hawke's Bay - up 25.8 percent to$400,000
  • Nelson - up 20.2 percent to$493,000
  • Otago - 15.3 percent to $400,000.

The number of arguably affordable houses being sold has dropped - 49.4 percent of all sales were homes under $500,000 in 2016, but only 47.8 now.

There were also fewer million-dollar houses being sold - 13.8 percent to 12.9 percent. The biggest jump came in houses between $500,000 and $750,000, which now make up 27 percent of all sales.