With housing costs increasing rapidly in reaction to high demand and undersupply, the impact on home loans is split three ways pretty equally.
The first – and possibly hardest hit demographic – are new home buyers. Those looking at buying their first home will likely feel the impact at its most raw level. The problem here is simply that there are not enough houses to meet demand. The flow on effect of this is that house prices in most regions are rocketing, and lending criteria is tightening, meaning more and more hardworking Kiwi’s are being locked out of a super competitive market.
Then there are the owner-occupier home owners with existing home loans. Here the impact will be felt the least – but that doesn’t mean it won’t be felt. The higher level of borrowing means these lovely low interest rates may not be as helpful as they would have been a year or two ago. It is also a good idea to consider the fact that borrowing while interest rates are so low means the impact of any interest increases on your budget could be pretty hard hitting.
Finally, there are the landlords –the ones that people assume are just sitting back looking smug and milking the cash cow. While they have managed to achieve a feat multiple times that many may never achieve, they still have home loans too – and probably pretty hefty ones – so they feel the pinch too.
Increased housing costs affect all of us and while it may sound volatile and stormy, it’s really just a pick n’ mix of plusses and minuses:
Not all negative impacts have a negative effect
While the huge demand and pressure on the housing market has caused lenders to impose stricter lending criteria, there are signs that this may help put a damper on rising house prices. Basically because less people now qualify for such strict lending conditions, there’s less competition in the market, and we are slowly starting to see sales easing up in some regions. This doesn’t mean the demand for housing is no longer there, it just means that…
Low interest rates may not have as positive an effect as they could have
Despite fixed rates being as low as 4.19% (as at July 2016) the higher housing costs could mean you are paying more now than a year ago when rates were nearer to 6% – people are borrowing more to cover higher house costs, mortgage repayments have increased on average by around 5-15%.
Rent prices are firmly at an all time high
This is 50/50 awesome/awful depending on which side of the rental line you are on. It’s good news for landlords – while rents still may not cover the increases to home loans entirely, the demand for rentals is high so you can expect to have consistent rental income flowing in. For renter it’s a bit of a tough one to swallow. Sadly, there’s just not enough houses and it’s becoming increasingly difficult to find an affordable rental that isn’t falling down on itself or won’t require an hours commute to work.
Does that mean that a home loan may be more affordable?
Possibly, yes. That is one of the upsides to peaking rental prices – it may just be more affordable to pay a home loan than sky high rents. Do the research, triple check your figures, and the numbers may surprise you.
We’ll leave developers out of this one
The impact on developers will be felt in a much different way. Think of all those terms cropping up lately – forced development, rates hikes, land banking and such. An interesting topic, but one for another day.
As you can see, it’s a mixed bag of positive and negative impacts – as with everything. Weighing up which section of the market you think is best for you and your finances isn’t always easy, but there are a number of factors to consider before making a decision.