The ‘eternal problem facing lenders’ with the government’s new CCCFA affordability rules

Newland says that’s a tough problem to solve.

“The rules were good, but it’s just really hard to figure out how people spend money or have conversations about how they might get affordable.

“The new amendment rules will once again open the door to ‘made up’ budgets that look to the future without first understanding the past – which is the perennial problem facing lenders.”

Newland’s comments come as annual house price growth shows signs of slowing. House prices are now 14% higher than a year ago, up from 30% in mid-2021.

While a slowdown in house price growth is encouraging for first-time homebuyers, homes are still far from affordable. The latest data from the Real Estate Institute shows that it now takes Kiwis 11.7 years to save up a security deposit, up from 9.3 a year ago.

The Reserve Bank also tightened lending restrictions in November, with a 2013 measure known as the loan-to-value ratio (LVR). LVRs were removed in response to the economic impact of COVID-19 in 2020, then reinstated in March last year.

Banks can now only lend 10% of their new loans to homeowners wishing to borrow more than 80% of a home’s value.

According to the Real Estate Institute, currently 48% of household income is required to service an 80% LVR mortgage, based on average property value, with a mortgage term of 25 years. It is up from 33% in 2020.

The Reserve Bank has also hiked interest rates to cool the housing market – a fire it started after cutting interest rates to record lows to keep money flowing during the COVID-19 economic downturn.

ASB Bank Chief Economist Nick Tuffley predicts ‘a steady sequence’ of interest rate hikes by the Reserve Bank as it tries to bring inflation down, which will add further financial pressure to markets. mortgage owners.

The official exchange rate (OCR) hit 1% last month, up from the all-time low of 0.25% imposed at the start of COVID-19 to stimulate the economy.

The 25 basis point OCR hike would cost the average mortgage holder an additional $825 a year, or $16 a week, according to Reserve Bank Governor Adrian Orr.

Economists at ANZ and Westpac expect the OCR to hit 3% by the middle of next year, while the ASB will pick 2.75% in early 2023.

The Reserve Bank’s loan funding program, which has made $28 billion available to banks to encourage lower interest rates on loans, is in place until December.

ASB said last week that 4,300 new builds were underway through its Back My Build home loan, backed by discounted funds available under the loan finance scheme. To date, ASB has drawn $2.9 billion.

This reflects the record number of new homes approved in New Zealand – 48,522 new builds were approved in November, representing an annual increase of 26%.

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