10 key insights into the mortgage and property markets

CoreLogic Chief Property Economist Kelvin Davidson has shared 10 insights into the current market, based on anecdotal evidence gathered from conversations with property buyers and industry professionals.

Buyers remain keen. Despite higher interest rates, buyers are still quite active, according to Mr Davidson. “But with affordability remaining a key hurdle, until there is a bit more clarity about the potential timing for mortgage rates to start falling, it may still remain tricky for many people to convert a willingness to buy property into an actual deal.”

Most people support debt-to-income (DTI) restrictions. “Sure, some people think the DTIs are a terrible idea. But on balance, more people seem to think they’re worth a shot, if they can help slowly restore some kind of normality for our housing market in terms of affordability.”

Regional buyers aren't too worried by DTI caps. Mr Davidson said that while there is a strong awareness that longer-term declines in mortgage rates will eventually result in income caps biting into people's borrowing capacities, regional buyers are still fairly relaxed. “That’s because property values are lower in relation to incomes anyway, so high DTI lending is always less of an issue in these areas,” he added.

People think DTI restrictions might be tweaked. “If the 20% allowances for high DTI lending will actually just be reserved for borrowers in pricier areas, such as Auckland, that might mean mortgages can flow relatively well for everyone,” Mr Davidson said. “But if those allowances aren’t reserved for expensive markets, it’s conceivable that some buyers from those areas will look outside their home patch.”

Borrowers appear to be one step ahead of mortgage stress. Mr Davidson said there’s a sense that some consumers with large debts are acting early, by downsizing or moving to cheaper locations. “Of course, it’s not easy to prove this, as these sales are not readily identifiable in the records – they’re just another sale,” he added.

Borrowers who are in mortgage stress are favouring loan term extensions over going interest-only. “Opting for a loan extension from 25 to 30 years, for example, at least allows some principal to still be paid off,” Mr Davidson said.

The shorter brightline test will drive more selling activity than buying. “Due to the substantial top-ups required for some investors but also an early ‘escape’ from capital gains tax, no doubt some existing landlords will start to list,” Mr Davidson said. “Of course, some people we spoke to will hang on, simply because a rise in new listings coming forward from other investors might make it an unfavourable time to sell.”

Some investors may not realise larger tax bills are coming. Mr Davidson said that while most property investors know that deductibility was at its lowest level in the tax year ended 31 March, some investors will be getting an unwelcome surprise with their latest tax bill. “This extra financial hit could underline the selling potential noted above,” he added.

Interest rate speculation is rife. The consensus view is that long-term interest rates will settle between 5.00% and 5.50%.

Economic conditions are challenging. “To be fair, that’s nothing new, but it’s been a useful reality check to hear it directly from ‘real world’ mortgage advisors, estate agents, bankers and property buyers,” Mr Davidson said.

In this current market, it’s more important than ever that your clients receive advice from a trusted mortgage advisor. If you know any clients who want to buy a property or refinance a loan, please refer them to me.