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How COVID-19 has changed the New Zealand residential property market

Along with everything else that’s changed due to the COVID-19 pandemic, New Zealand’s property market is no longer quite the same as it was.

Both the government and the Reserve Bank have implemented new rules and we are already seeing some changes.

In this month’s blog, we take an in-depth look at New Zealand’s property market in the era of COVID-19.

LVR Restrictions

From the 1st of May, the Reserve Bank removed loan-to-value (LVR) restrictions in a change that will last for at least 12 months.

The LVR is a measure of how much a bank lends against a residential property in comparison to the value of that property.

For example, if you want to buy a house for $500,000 and you have a $100,000 deposit, the $400,000 you borrow from the bank is 80% of the property’s value. That means an LVR of 80%.

In most cases prior to COVID-19, an LVR of 70% was required for people to purchase. The removal of this restriction has meant that people who have a smaller deposit are still able to purchase, committing to a higher LVR.

The decision was made to help bolster the property market, allowing people to buy without the deposit they would have required previously and therefore aiming to keep prices and demand steady.

Interest Rates

On the 16th of March, the Reserve Bank dropped the Official Cash Rate (OCR) from 1% down to a record low 0.25%.

This was another move to help bolster the economy and keep property prices steady. With an OCR cut, interest rate cuts follow, resulting in higher confidence and making it more affordable for people to buy residential property and keep the property market afloat.

The OCR will stay at this new level for at least a year to “continue to assist and support economic activity in New Zealand”.

House prices

It is still unknown what the full impact, if any, the pandemic will have on New Zealand housing prices. ASB Bank has predicted that house prices will drop for the next 6 months while many economists have predicted a price drop of 5-10%.

Research conducted by OneRoof however suggest that house prices could remain steady as they are bolstered by changes to interest rates and LVR restrictions.

Across most of the country, property has recently seen strong growth meaning that a drop for example of 5% would only affect gains made in the last few months anyway.

In fact, it was only in November 2019 that prices were 10% lower than they are now.

If you are looking to buy residential property either as a family home or an investment have a chat to us. Our experienced financial advisers can help you determine if it’s the right move while our home loan adviser can help to secure you the best rates and structure for your loan.

Regional Change

One likely outcome of COVID-19 is that house price fluctuations will vary depending on the region. OneRoof has predicted that Wellington real estate will come through the crisis better than other parts of the country due to the high proportion of public sector employment in the region.

Queenstown on the other hand may be dramatically impacted due to the regions’ dependence on tourism.

In Auckland and Christchurch, the housing market has been relatively flat and may see some reduction in house prices.

As yet, clear patterns have not emerged so we are still in a situation of predictions and guessing as we watch to see how things pan out over the coming weeks and months.