CREDIT SQUEEZE: COVER STORY
H C N U CR IME T A deepening credit squeeze is making it harder to get a mortgage, with regulators and banks cranking up the restraints on a rampant housing market and rising inflation. CATHERINE MASTERS reports on a worsening situation for first home buyers.
T THE end of 2020, the Reserve Bank advised the main trading banks it could bring in negative interest rates. A li!le more than a year later and the housing scene has changed dramatically. This year is looking like the year of the big squeeze, with pressure on pockets coming from every direction – rises in inflation, interest rates and rents are all coming on the back of a near 30% annual rise in house prices. Filling the car is costing more; filling the supermarket trolley is costing more; saving for a deposit for many is harder and the deposit required is bigger because house prices have shot up so much across the nation. Coupled with much tougher bank lending through the CCCFA (Credit Contracts and Consumer Finance Act) and deposit size restrictions, some agents are already reporting far fewer buyers and say some of those left looking are ge!ing desperate. One mortgage broker in south Auckland told how people who might have saved hard for a 10% deposit were resorting to non-bank lenders to loan them an 80% mortgage, with that lender then topping the remainder up with a personal loan. While the interest charged is much higher than a bank it’s still cheaper than renting, he said. Another agent reported some sellers who took advantage of the huge sums being paid last year by
developers - by agreeing to super-long se!lements – are now being caught out, with deals expected to fall through, partly because developers can no longer get the funding. The game has changed so much so quickly, especially in the first home buyer market. Another agent predicts up to 30% of real estate agents who joined during the lucrative Covid boom will quit the industry this year. So what happened in the space of a year? Economists and policy-makers point to various reasons, including the expectation this time last year that inflation would be more like 2.5% to 3%, rather than the almost 6% it is now. “Pushing up to 4% or 5% felt like a pre!y extreme scenario, let alone pushing up to the 6%-plus that we might be seeing as well. It’s almost like the models can’t cope with what’s being thrown at them, really,” says Infometric’s Gareth Kiernan. Interest rates, too, have risen much faster than expected, plus a year ago the housing market was so strong that there was a lot of pressure on the Government and the Reserve Bank to do what they could to alleviate those galloping prices. The economy also bounced back harder and faster than expected after the lockdowns, but now we are in a period of rapid inflation being seen globally. Of all the measures the Government has put in place, such as LVRs, none come close to the impact the CCCFA is having, where banks have to be responsible lenders or face potential fines, the experts say. The Act was never intended to curb the housing
