The Reserve Bank will be reinstating LVR restrictions on banks from March 2021, though CoreLogic’s Kelvin Davidson says their impact may be limited - particularly on the investor side of the market, unless the equity bar is set much higher.
Davidson says that first home buyers will still have a way in on a less than 20% deposit, and investors can likely afford to front up 30% regardless of requirements, particularly given the gains made by those who already own investment properties over the past six months.
“From an owner-occupier perspective, I’m not sure that the reinstatement of LVRs will make much difference when it comes to demand,” Davidson said.
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“If we’re talking 20%, then that’s what the banks have been doing anyway - so nothing changes, and for first home buyers, there are exemptions either way. Even under LVR restrictions, they are allowed to advance a chunk of lending at less than 20% equity, so there are still ways in for people who don’t have that deposit.”
“For investors - if the Reserve Bank goes to 30% like they’re talking about, it’s hard to see that making a huge amount of difference either,” he explained.
“There’s a feeling that a lot of the people who have brought investment properties recently could have put up 30% anyway, so if that becomes a requirement, then they won’t have an issue doing it.
“Those who already own an investment property would have seen the value of that go up by 10% over the last six months, so if they have, say, 25% and then restructure their finances, they can easily create the equity for their next purchase.”
Davidson said the only way LVR restrictions might conceivably make a difference is if banks set their deposit requirements at 40% - something ANZ did voluntarily late last year. He noted that the last time this happened back in 2016, investor demand dropped significantly.
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“If the Reserve Bank goes to 40%, then that could potentially be a more impactful change,” Davidson said. “ANZ has already done that of course, and I think it won’t be too long before other banks go to 40% too.”
“The last time the banks went to 40% was back in 2016, and that really did make a difference,” he added. “We saw the investor share of the market really fall away quite sharply, so that might be where we need to go before we see much of a change.”