High-LVR mortgage lending still well below its ‘speed limit’

by Ksenia Stepanova28 Feb 2019

Banks have started utilising their new ‘speed limit’ of 20% for high LVR lending but the general attitude has remained one of caution, according to CoreLogic analysis.

High-LVR lending to owner-occupiers increased from 9.8% in December 2018 to 12.1% in January, though senior property economist Kelvin Davidson notes that the figure is still well below the approved leeway of 20%. Banks are continuing to enforce their stringent lending criteria, and are likely taking a strong note of the potential introduction of new capital requirements by the Reserve Bank.

RBNZ statistics showed that mortgage lending has risen by $360 million year on year, with the January 2019 figure sitting at $4.1 billion. These are the first statistics to emerge since RBNZ’s loosening of LVR restrictions last year, though a clearer picture of any impact is expected only in July.

“The loosened LVR restrictions have certainly had an immediate impact on lending flows,” Davidson told NZ Adviser. “High-LVR lending has gone up from less than 10% to 12%, and that’s the highest it’s been for some time.”

“High-LVR lending will probably provide a boost to transactions over the next few months, and that activity will likely have a positive effect on prices,” he stated. “It remains to see how large that effect will be, though it may be hard to extract it from the various other factors affecting the market at the moment; the recommendation for capital gains tax, for example.”

Davidson says a capital gains tax may add to the general sense of caution on the side of investors, whose lending flows are slightly down on last year.

“A capital gains tax may see people who might otherwise have sold holding on to their properties,” he explained. “The transactional impact there is easy to see. There might also be a spike in selling activity before the tax comes in, to try and avoid it – thought I would expect that effect to be relatively small. The Tax Working Group’s paper suggested an effect on prices, but internationally we’ve seen that that hasn’t been the case.”

“Cautious credit policies at banks have led to less investors taking out mortgages, but they’re nonetheless fairly active. It’s simply the case that borrowing levels haven’t changed a large amount in comparison to last year, so it’s not as though they’ve completely shut up shop.”

“Overall, we’d anticipate more increases in mortgage lending in 2019, but the growth is unlikely to be rampant,” he concluded in his report. “We wouldn’t be surprised to see the share of owner-occupier lending at high LVRs rise to about 15%, then flatten off (i.e. hit the old speed limit, but stay about 5%-points below the new speed limit).”


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