Changes to loan-to-value restrictions might be welcome news for people with small deposits, but they are unlikely to make a difference to the housing market overall.
The Reserve Bank said earlier today that it planned to ease the limits from December 1.
Banks will be able to lend a total of 25% of new lending to borrowers with less than a 20% deposit, compared to 20% at present.
For investors, the share of new lending that can be made to people with equity or deposit of less than 30% will lift to 10% from 5%.
Reserve Bank acting assistant governor of financial stability Angus McGregor said the bank had concluded that the debt-to-income restrictions introduced last year meant LVR rules could be less restrictive.
“Easier LVR settings will give banks more flexibility to lend, improving market efficiency and access to credit, particularly for first-home buyers.
“Now is an appropriate time to move to the new default settings. House prices are within our range of sustainable estimates. Growth in mortgage lending remains moderate and the share of high-risk lending is low.”
Infometrics economist Matthew Allman said it was unlikely to add material upward pressure on house prices.
“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.
“Demand for lending should also be constrained by the current state of the housing market. Poor housing affordability remains an issue for owner-occupiers, while prices and weak demand for rents means rental yields for investors remain low.”
Kelvin Davidson, chief property economist at Cotality, agreed.
“One key thing to note is that 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. I think this just illustrates the caution that pervades the market at the moment, and the restraint of the weak jobs environment.
“To be fair, the investor speed limit as it stands is quite tight, so there may be a bit more of an effect for investors. But a 10% new speed limit is still quite tight, and of course DTIs are there in the background too. So I doubt we’ll see a flood of new investors – not least because a lower deposit just means more debt, although there may be a few more.
“Maybe a marginal effect, but the bigger drivers will still be interest rates and the labour market.”
Reserve Bank data showed that in August, $991 million of total new lending of $7.5 billion was to borrowers with a loan-to-value ratio higher than 80%. That is down from July’s $1.1b, but up from $673m last August.
rnz.co.nz
