In the wake of last months announcement from the Reserve Bank of New Zealand that the LVR’s would remain in place its recent stability report, many have started prediction the LVR’s will be lowered further in November when the Reserve Bank make further announcements in their next reporting.
And the reserve bank aren’t exactly being subtle about it either, with Reserve Bank Deputy Governor Geoff Bascand stating recently that the central bank is “inclined to continue easing” the rules on bank mortgage lending, after leaving the current LVR’s unchanged. This statement echo’s what many experts have been predicting as the market continues to remain steady and employment is strong.
In their half-year predictions, QV indicated that possible options include lowering the owner-occupier deposit requirement from 20% to 15% and/or raising the investor speed limit for high LVR lending from 5% to 10%.
The Reserve Bank introduced LVR’s in October 2013 in response to rapid house price growth, especially in Auckland, accompanied by a sharp increase in the use of low-deposit loans. The policy helped to strengthen bank balance sheets and had an immediate dampening effect on housing market activity and house price inflation.
The loosening of the LVR’s have already had major impacts on the local market, with banks announcing record-breaking low interest rates and a number of first-time buyers beginning to return to the market as a result – all which can be seen as positive effects, and why many are predicating that the LVR’s could be loosened further, or even removed completely.
In fact many experts are beginning to wonder if the LVR speed limits could be completely removed of the market remains steady, if so, it will be the first time since being put in place in 2013 that the LVR’s will have been out-right loosened. Bascand has also commented on this possibility, stating, “In the long term, we face a choice between removing the LVR restrictions and maintaining a permissive setting.”
But the International Monetary Fund has cautioned the Reserve Bank about further loosening of speed limits on LVR’s, warning of the “risks to financial stability from elevated household debt” and that that mitigating supply constraints is critical for improving affordability. The IMF made the point that the speed limits were put in place for a good reason, to protect those purchasing form entering into debt that they can’t actually afford, and to protect the market from collapse – something that has happened before with disastrous effects.
Many will be watching the decision come November, with the coming months being of particular interest in which trends and changes come into play that could tip the banks decision either way.