The Reserve Bank of New Zealand’s easing of restrictions on loan-to-value ratios (LVRs) may mean more borrowers can secure loans, but it’s not a guaranteed outcome, says one expert.
According to CoreLogic research analyst Kelvin Davidson, the despite relaxation of LVR rules, mortgage lenders may still remain cautious.
In his analysis, Davidson mentioned Reserve Bank’s latest (Q3) update to the Bank Financial Strength Dashboard, which highlights that the “non-performing housing loans” ratio is very low for all main banks at 0.2 or less – reflecting careful lending practices, the LVR speed limits and the strong economy. He also cited latest lending statistics, which reveal lending flows in October were higher than a year ago and that the rise came despite lenders still staying well away from the LVR limits as they were at the time.
“So, how can lending flows be rising whilst banks are still showing a cautious approach to new loan standards?,” Davidson asked. “One explanation would be that the share of mortgage applications being approved is rising; because only the best borrowers are coming forward.
“These higher quality borrowers would have a sufficient deposit, be able to meet more stringent income and expense testing, and could service the debt at a hypothetical mortgage rate of 7% or more,” he explained.
With all things considered, even with the easing of LVR rules, Davidson is pessimistic that borrowers, who were previously locked out of the market, can soon set foot in their new homes.
He pointed to the latest Financial Stability Report, which highlighted the RBNZ’s view that “higher capital requirements are necessary, so that the banking system can be sufficiently resilient whilst remaining efficient.”
“In other words, a requirement in future for the banks to hold higher capital buffers would tend to dampen lending flows,” Davidson concluded.