In his latest issue, Tony Alexander (BNZ economist) discusses what appears to be a huge shift in the Reserve Banks’ thinking. In the past the bank has used interest rates to curb house prices. However in a low inflation, low interest rate economy, raising interest rates has a detrimental effect on other factors such as the value of the Kiwi dollar. If we have high interest rates then overseas money flows into the country to take advantage of the rates, our dollar goes up and then our exporters find it hard going as their products are less competitive, so the country suffers.
The 30% Auckland based deposit requirement is the first of what may be a series of moves by the Reserve bank to control house prices by restricting credit to house buyers. In simple terms what the bank does is instead of making money more expensive it makes it harder to get. The days of easy money could dry up.
Last week my 5 year old grandson was staring intently at my head for some moments before he quizzically stated, “Poppa Baz! I have never known anyone with silver hair before”. Bless him!. Us old silver hairs’ can remember the last time credit was hard to get in the 1980’s . To get into my first home I had to have a dedicated post office home saver account. It had to be open for a minimum of three years with a steady savings record. I then qualified for a first mortgage at a subsidized rate and a second mortgage at a higher rate. It was not enough to buy a home but by the time I added to it, by taking my overdraft up to its limit, maxing out both my credit cards and taking a small bridging loan from my solicitor, I had enough to buy my first home. It looks like these days are coming back, so relationships with your banker will become more important.
If you don’t get Tony Alexanders newsletter can I recommend you do. He talks plain English and has been very accurate over the 10 years that I have been reading him. The link below will take you to his last issue and there is a free subscribe button on the page.
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