Property rules changing, high mortgage rates still key

• The loan to value ratio (LVR) rules have eased – 20% (previously 15%) of owner-occupier lending can now be done at <20% deposit, while up to 5% of investor lending can be done at <30% deposit (previously 35%)
• Debt to income (DTI) ratio caps now apply – most owner-occupiers need to keep their loans to a maximum of six times income, with investors at seven times income, although the banks also have a 20% allowance to lend outside those rules
• The Brightline Test has been shortened to two years for all properties, meaning investors are exempt from capital gains tax if they’ve owned for at least two years before they sell

On top of that, first home grants had already been removed a few weeks ago, and of course, 80% interest deductibility for mortgaged investors started back again on 1 April. Also in the background is the gradual easing in the Credit Contracts and Consumer Finance Act regulations, which means that lenders don’t need to scrutinise your bank statements quite as closely as before.

In regards to the shorter Brightline Test, some investors might feel more inclined to buy more properties, due to less risk of having to pay capital gains tax. But it might also mean that selling some properties becomes a more palatable option for those investors currently struggling with cashflow. To the extent that this happens, it’ll tend to add to an already-high number of available listings – great for prospective buyers.

The easing in the LVR rules means there’s now a bit more low-deposit finance available for both owner-occupiers and investors, although this might tend to benefit the latter a bit more than the former. This is because there’s already a decent amount of low-deposit lending flowing out to owner-occupiers (even at the previous tighter speed limits), but not much to investors. Of course, this might remain a relatively quiet area of activity, given that a lower deposit simply means a larger loan – not ideal when mortgage rates are still in the vicinity of 7%.

In regards to DTIs, these will play a significant role in the longer term, by tying house prices more closely to incomes over the cycle and slowing down the rate at which investors can build a portfolio. But these are issues for another day; right now the DTIs will do very little because high mortgage rates are already limiting how much debt people can secure.