4 Reasons we are not in a ‘crash’

by Apr 20, 2022First Home Buyers, Industry News, Non-Bank Lending

There’s a lot in the press about house prices and which way they will go. What’s not said (because it’s not ‘newsworthy’) is that we’ve been here before and thrived. 

House prices always go up over time and there is nothing to say this will change.

Buying and selling in the same market is key to most people. If prices drop say 10%, then the ‘value’ of your purchase is likely to drop more than the ‘value’ of your sale. 

In other words, the price gap decreases. 

For first home buyers this is also good news, apart from the impacts of the CCCFA changes, but more on that later. 

For those moving down market, the changes can have an impact, however this is a small sector of the market.

4 reasons we are not in a ‘Crash’.

 

1. Regarding Reserve Bank 

Although we have an almost perfect storm, with the Reserve Bank hiking rates and a Government change to CCCFA (this is the way Banks assess your borrowing), the Reserve Bank will not kill the property market to kill inflation, as that’s a price too high for any nation. 

The CCCFA is under review due to the huge backlash, not just from the industry, but from borrowers frustrated by Banks seemingly unwillingness to lend. 

June is a month to watch here.

 

2. Markets ebb and flow and always have done – look back at the GFC. 

In 2007 and 2008 house prices in some suburbs dropped by around 15%, however from 2010 to 2020 prices almost doubled. 

From 1980 to 1990 Auckland tripled, and we had double-digit interest rates!

 

3. First home buyers will return. 

Normally first home buyers account for around 25% of purchases, but this has dropped significantly due to the CCCFA changes above. 

These will change and we are already seeing a greater number of enquiries and successes as lenders find ways to assist and the whole CCCFA is under review in June anyway.

 

4. ‘Loan to Values’. 

There has been quite a bit in the press around people borrowing too much against property going down in value. 

This simply is not the case. The facts are that although mortgage debt has risen from $290 billion in Feb 2020 to $334 billion in Feb 2022, the value of the security (your home) has risen from just over $1 trillion to $1.72 trillion in the same period. Even taking into account a market correction, which is normal, there is no evidence that current lending levels are a threat to our Banking system.

Yes, it’s harder to borrow and yes the banks have seen a huge increase in complaints about why they are declining loans. However the Non Bank sector has taken this opportunity to thrive with lending off the charts, much of which at close to Bank rates too.

Even if prices drop by 10% (which is what most bank economists are predicting) this takes us back to late 2021 in real terms, so for most people not a concern.

Banks have always ‘stress tested’ loan applications at way more than people actually pay. This is a requirement under ‘Responsible Lending’ and is a prime reason so few people got affected in the last downturn, compared to those, say in the US.

As always, whatever your situation it pays to talk to an independent Adviser.

iLender has access to all types of lenders from the main Banks to Non Bank lenders and private sources too.

About iLender

At iLender we put your best interests first and not the Bank – our advice is unbiased as all Lenders who we do business with pay about the same in commissions.

Although we are Auckland based Mortgage Brokers, we help customers everywhere in New Zealand and overseas with buying property in New Zealand, as we are very much about online and giving advice here and now!

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