Almost three weeks into our nationwide lockdown, some are starting to wonder if their property is worth what they originally paid for it. As many Kiwis have been affected by Covid-19 and the unemployment rate is potentially set to rise from 4% to 10%, there is some concern that the property market will drop and homes may not be worth the amount they were purchased for.
According to Westpac’s economic team, New Zealand's house prices are expected to drop by 7% this year. Those who've recently purchased with a 5% deposit using the First Home Loan scheme will no doubt wonder if their mortgage balance may be higher than the value of their property.
However, because of tight loan-to-value ratio (LVR) restrictions enforced by the Reserve Bank of New Zealand, the proportion of property owners with a 95% LVR is not high. These LVR restrictions may have made it harder for those in metro areas to purchase a property, but it does protect homeowners from ending up with negative equity in their homes during this sort of crisis.
According to a recent article from Squirrel Mortgage Brokers, CEO John Bolton expects the larger cities such as Auckland to recover quickly from any house price fall. The 6-month mortgage repayment deferrals should help soften the blow to financial situations, and give people enough time to avoid having to sell. The expected influx of immigrants once our borders reopen should also keep the demand for housing relatively high. Bolton expects that this may take up to 18 months to see out, but that house prices should remain relatively flat.
