LVR loosening seen as balanced, not booming
Economists and industry leaders have broadly welcomed the Reserve Bank’s (RBNZ) plan to ease loan-to-value ratio (LVR) restrictions from Dec. 1, describing the move as a balanced adjustment that gives banks more flexibility without fuelling another housing boom.
RBNZ sees room for flexibility
Acting assistant governor for financial stability Angus McGregor said the move reflected the stabilising effects of debt-to-income (DTI) restrictions introduced last year.
“Easier LVR settings will give banks more flexibility to lend, improving market efficiency and access to credit, particularly for first-home buyers,” McGregor said in a media release.
He added that the timing was appropriate given current conditions.
“Now is an appropriate time to move to the new default settings,” McGregor said. “House prices are within our range of sustainable estimates. Growth in mortgage lending remains moderate and the share of high-risk lending is low.”
Economists: “Sensible adjustment” with limited impact
Infometrics economist Matthew Allman (pictured left) said the change was unlikely to spark significant price growth but would give lenders more room to operate, 1News reported.
“The debt-to-income restrictions introduced last year appear to be limiting lending activity, so slight easing to LVRs at a time when national house price inflation is just 0.2% a year seemed like a sensible time for the Reserve Bank to adjust the settings,” he said.
Allman said weak affordability and low investor returns would continue to curb demand.
“Poor housing affordability remains an issue for owner-occupiers, while prices and weak demand for rents means rental yields for investors remain low,” he said.
Cotality chief property economist Kelvin Davidson (pictured centre) agreed, saying borrowers and banks were already well within existing limits.
“Banks and borrowers, at least on the owner-occupier side, are already operating well below the current limits, let alone the relaxed versions from December 1,” Davidson said.
He noted that investors might see a small benefit, but broader market momentum would remain muted.
“Maybe a marginal effect, but the bigger drivers will still be interest rates and the labour market,” Davidson said.
Government, investors welcome support for buyers
Finance Minister Nicola Willis (pictured right) said the decision would help more Kiwis achieve homeownership, 1News reported.
“Homeownership is part of the Kiwi dream,” Willis said. “Relaxing the restrictions on the amounts banks can lend will make it easier for Kiwis to get a foot on the property ladder.”
The New Zealand Property Investors Federation (NZPIF) also backed the move as pragmatic.
“The proposed changes are targeted and could make a difference to first home buyers with less of a deposit, and to small-scale ‘mum and dad’ property investors – which is to say, most investors,” said advocacy manager Matt Ball. “It’s a pragmatic change that will help people into homes and increase rental supply, but because it is targeted, it won’t cause a demand-led spike in property prices.”
Advisers: Marginal lift in opportunity
For mortgage advisers, the change represents a modest expansion in lending potential, particularly for first-home buyers. But with DTI limits unchanged and interest rates still high, analysts agree the impact on demand and prices will remain contained.
As Davidson noted, the overall tone of the market remains cautious.
“This just illustrates the restraint of the weak jobs environment,” he said.
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