“Banks with too much demand just can’t process everything coming their way”
Banks have raised their LVR requirements to 40% for investors in a bid to cool the red-hot housing market, but Simplicity founder Sam Stubbs said it’s unlikely the banks want the market to slow - rather, they need breathing space to deal with a boom in new business.
Stubbs said that with demand higher than ever, banks are struggling to process all of the new deals coming their way, and the 40% LVR requirement may be aimed more at discouraging a large amount of new applications.
Read more: Auckland property market remains solid
“Banks are hard-wired to grow, so when things get particularly crazy, I don’t think they’d necessarily want to cool the housing market,” Stubbs commented.
“But banks with too much demand just can’t process everything coming their way, so to a certain extent, I think they’re dressing up their inability to deal with all the new business coming through the door. People are scared of prices going up, and the restrictions they’re putting on are aimed at discouraging applications rather than discouraging lending.”
“Mortgage margins are also back to very high levels,” he added. “Everyone said that mortgages are cheap, but they’re actually very expensive because the revenue margin for banks is now very high, as the cost of funding is very low.”
Despite this, Stubbs said that the fundamental issue with the market is still a lack of supply - something that is out of the hands of the banks, and won’t be sorted by ‘short term fixes.’
Read more: Government compels RBNZ to “consider housing” when setting rates
“It’s important to bear in mind that the fundamental issue with the housing market is in demand and supply,” Stubbs said.
“There just aren’t enough houses, and these are ultimately short-term fixes. To a certain extent, encouraging first home buyers is good in that regard because they tend to be the ones who buy more of the new builds.”
“Overall, I’m fairly cynical as to what the banks say, versus what they do,” he concluded. “I don’t think their intention is necessarily to calm the housing market.”
