Economists predict LVR will remain at current level

by Roxanne Libatique26 Nov 2019

Westpac economists have predicted that the Reserve Bank of New Zealand (RBNZ) will keep the loan-to-value ratio (LVR) at its current level amid house price concerns.

The economists said on Westpac’s latest weekly report that they expect an upturn of the economy along with the housing market, and that fears of an overheated housing market could convince the central bank to not change anything yet.

"Our long-held view has been that, after the economic slowdown over the past year, we will see a reacceleration in economic growth underpinned by increases in fiscal spending and supportive monetary policy,” said Dominick Stephens, chief economist at Westpac.

“Recent data indicate that just such a reacceleration is underway, and it’s likely to continue over the coming years. With much of the pickup in activity centred on the housing market, stability concerns are back on the radar. As a result, we expect the Reserve Bank will keep the current loan-to-value restrictions unchanged when it releases its latest Financial Stability Report."

Read more: Economists predict “small loosening” of LVR in November

Other economists aired the same concerns, with CoreLogic senior property economist Kelvin Davidson saying that he thought the LVRs would be relaxed at the upcoming Financial Stability Report (FSR) – until recently.

“The latest strong lending figures, along with their data showing the return of mortgaged investors to the housing market, put a question mark over that,” Davidson said at the TMM Better Business conference in mid-November.

He added that the “lending environment has already eased a bit, with serviceability tests relaxed and the OCR sitting at 1.0%.”

“While the coming extra capital requirements for banks could impact longer term, overall we are looking at a gently easing lending environment that bodes well for sales and demand next year,” Davidson concluded.

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