Tough conditions for mortgaged New Zealand investors

Homeowners across New Zealand who own multiple mortgaged properties face tough buying conditions as regulations and higher interest rates make it harder to purchase homes.

According to CoreLogic NZ, the percentage of mortgaged multiple property owners (MPOs) purchasing homes across New Zealand has tumbled to 20.9 per cent – the lowest level in seven years.

CoreLogic NZ Chief Property Economist Kelvin Davidson said MPOs have been in the firing line lately, as Government/Reserve Bank regulation ramped up, and the simple economics of being a landlord has also turned against them. 

“These hurdles have included ring-fencing of tax losses, the extension of the Bright-line Test, the removal of interest deductibility, the 40 per cent deposit requirement, and then the sharply widening gap between gross rental yields and mortgage rates – meaning that ‘top ups’ are almost inevitable for anybody making a new purchase lately,” Mr Davidson said.

Mr Davidson said during the pandemic there was a huge surge in investors entering the market.

“As can be seen, the spike in overall investor activity post-Covid was driven by smaller players,” he said.

“However, since early 2021, their market shares have been sliding lower, as well as MPO 5-9 (homeowners with between five and nine properties) to some degree too.

“This all seems logical – the ‘newbie’ investors probably had the most anxiety about all of the regulatory changes being pushed through, as well as probably having less equity behind them, and also a greater eye on alternative ‘safer’ investments (such as term deposits, which are again starting to pay better returns).”

Source: CoreLogic NZ

According to Mr Davidson, while mortgaged investors are on the decline, cash buyers are starting to come into the market as prices fall.

“The cash investor groups have pretty much raised their market share lately across the board,” he said.

“Cash MPOs have been enjoying conditions, with their market share currently hovering at a relatively high level.

“To be fair, some of these purchases won’t be cash per se, rather they’re likely to have involved the reshuffling of debt on other properties in a portfolio, in order to free up the equity for the latest purchase. 

“Even so, it still stands to reason that, in the current environment of expensive and restricted credit, cash buyers would be seeing opportunities.”

Mr Davidson said with credit conditions set to remain testing for a while yet – especially with formal caps on debt-to-income ratios now needing to be added to medium-term considerations – cash MPOs may well hold on to a decent market share in 2023.

“The converse is that the percentage share for mortgaged MPOs looks set to continue to struggle into next year – although it also needs to be acknowledged that some would-be investors will have actively chosen to pull back, with the aim of buying something cheaper later,” he said.

“That time could well be 2023, if they can navigate the mortgage hurdles. 

“One final point, albeit something to jot down in the diary for a few years away yet, given the flurry of investor purchases in the 12 to 18 months after COVID first hit, and the fact these purchases had a five-year Bright-line period, watch for some kind of potential sell-off in 2025-26.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.