The Reserve Bank’s made a shock announcement that next month it will consult on the possible reintroduction of high loan to value ratio (LVR) lending limits on banks early next year – and concedes it is now observing “rapid growth in higher-risk investor lending”.
The move, to reintroduce the LVRs in March, is in effect a screeching u-turn by the central bank and goes back on its commitment to have the LVRs lifted for at least 12 months. It will inevitably lead to questions about whether the RBNZ may now go back on its previously announced – and reiterated – commitment to leave the Official Cash Rate unchanged at 0.25% for 12 months – so, till at least March next year.
RBNZ Deputy Governor and General Manager of Financial Stability, Geoff Bascand, confirmed the RBNZ intended to “reinstate the restrictions we had in place in April before we removed them”.
Specifically, he said this meant no more than 5% of a bank’s investor lending could go to borrowers with deposits of less than 30% (IE most investors need a 30% deposit), and no more than 20% of owner-occupier lending could go to borrowers with deposits of less than 20% (IE most own-occupiers need a 20% deposit).
Many watching the market suggest it is very possible that the impending restrictions could cause an immediate rush of additional buyers onto the market, eager to get low deposit loans approved while they still can, and that will cause the housing market to become even more over-heated than it already is, until the restrictions come into force in March.
If that does turn out to be the case, we could expect a very hot market indeed for the next few months, but some suggest that LVR restrictions are far more likely to be applied to property investors than they are to first home buyers, or existing home owners looking to make a move into another property. So while investors looking to secure low deposit loans may feel some urgency in getting their deals stitched up as quickly as possible, first home buyers and existing home buyers may not feel the same pressure.
It will remain to be seen what effect this announcement will have on the market, or on the record-breaking numbers that have proceeded in the last quarter of the year.