The Reserve Bank foreshadowed today what it called a modest easing of the loan:value ratio (LVR) restrictions on residential lending.
From 1 January, the restrictions will require that:
- No more than 15% (currently 10%) of each bank’s new mortgage lending to owner-occupiers can be at LVRs over 80%, and
- No more than 5% of each bank’s new mortgage lending to residential property investors can be at LVRs over 65% (currently 60%).
Reserve Bank governor Grant Spencer said: “The bank will monitor the impact of these changes and will only make further LVR adjustments if financial stability risks remain contained. A cautious approach will reduce the risk of resurgence in the housing market or deterioration in lending standards.”
Releasing the bank’s November Financial stability report, Mr Spencer said New Zealand’s financial system remained sound, and risks to the system had reduced over the last 6 months.
“Momentum in the global economy has continued to build over the past 6 months, reducing near-term risks to financial stability. However, the New Zealand financial system remains exposed to international risks related to elevated asset prices & high levels of debt in a number of countries.
“Domestically, LVR policies have been in place since 2013 to address financial stability risks arising from rapid house price inflation & increasing household debt. These policies have helped improve banking system resilience by substantially reducing the share of high-LVR loans.
“Over the past 6 months, pressures in the housing market have continued to moderate due to the tightening of LVR restrictions in October 2016, a more general firming of bank lending standards and an increase in mortgage interest rates in early 2017.
“Housing market policies announced by the Government are also expected to have a dampening effect on the housing market.
“In light of these developments, the Reserve Bank is undertaking a modest easing of the LVR restrictions.”
Deputy governor Geoff Bascand said: “Looking at the financial system more broadly, the banking system maintains adequate buffers over minimum capital requirements and appears to be performing its financial intermediation role efficiently. The recovery in dairy commodity prices since mid-2016 has supported farm profitability and has helped to reduce bank non-performing loans in the sector. Recent stress tests suggest that banks are well positioned to withstand a severe economic downturn & operational risk events.
“The bank has released 2 consultation papers on the review of bank capital requirements and a third paper on the measurement & aggregation of bank risk will be released shortly. The aim of the capital review is to ensure a very high level of confidence in the solvency of the banking system while minimising complexity & compliance costs.
“The bank has also completed a review of the bank directors’ attestation regime and is making good progress in implementing a new dashboard approach to quarterly bank disclosures. This is expected to go live next May.”
Real Estate Institute critical of no move for first-homebuyers, but…
Real Estate Institute chief executive Bindi Norwell expressed surprise that restrictions had been eased for investors but remained at the same level (20%) for first-time buyers: “For some months now, the institute has been calling for a review for first-time buyers to make it easier for them to get a foot on the property ladder.
“We constantly receive feedback from our members around the country that for many young couples, saving a 20% deposit is just too much for them – especially when they’re already paying rent. With a median house price of $530,000 in New Zealand, this means a deposit of $106,000 is needed. In Auckland, with a median house price of $850,000, this is a deposit of $170,000.”
However, that’s not what the Reserve Bank said. Loans can exceed 80% of value, but the bank has to watch the proportion of its total book in that category.
Attribution: Bank & Real Estate Institute releases.