RBNZ indicates further restriction relaxations to reignite the housing market
The Reserve Bank of New Zealand (RBNZ) has indicated that it may ease LVR restrictions further this week in response to a slow-moving property market and stabilising house prices.
Banks are currently limited to offering no more than 15% (formerly 10%) of their total mortgage lending at LVRs of more than 80%. For residential property investors, no more than 5% can be at LVRs of more than 65% (formerly 60%). The Reserve Bank has been undertaking a review of LVR rules, and will announce its conclusions in its upcoming Financial Stability Report.
The first round of LVR restriction loosening came early this year, though economists say that if any further easing occurs, it would likely be relatively minor.
“We’re currently divided on whether or not RBNZ will ease the LVR restrictions at this particular meeting, though on balance, we’ve come marginally down on the side that they won’t,” ASB chief economist Nick Tuffley told NZ Adviser.
“If we do see an easing, we think that it will be more on the side of the owner-occupier restrictions rather than the investor restrictions. That would be more in keeping with the government’s broader policy agenda of making it easier for owner-occupiers and first home buyers to enter the market, and tilting the playing field away from property investors.”
Tuffley says the first round of loosened LVR restrictions contributed to a higher level of lending, with first home buyers benefiting the most from increased access to credit. He says any further easing would likely have the same effect, though the move won’t be enough to breathe life back into the market on its own.
“When we saw the first set of loosened LVR restrictions come through earlier this year, you certainly did see more utilisation of that higher limit of lending,” he stated. “The market was recovering from an election time hiatus where sales, turnover and new listings had dried up, but it does look like the loosened restrictions contributed to a near-term bounce. Many people who were well able to meet the debt servicing criteria but didn’t have a sufficient deposit would have previously found it challenging to obtain a mortgage.
“Any current easing is likely to be quite incremental, so it will enable some people to borrow – but it’s not likely to reignite the market on its own,” Tuffley concluded. “But we acknowledge that it will also be coming at a time where we’ve seen mortgage rates fall, which could well add further stimulus.”
