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RBNZ: What might have happened without LVRs

Loan-to-value restrictions have moderated house price inflation and credit growth in the six months since they were implemented, the Reserve Bank says.

Friday, May 16th 2014, 12:14PM 1 Comment

It has released a report today, using a counterfactual analysis to determine how the LVR rules have affected the housing market.

The counterfactual scenario is a description of what could have happened in the absence of the LVR restrictions, over the same period.

In the report, author Gael Price says that since banks have been limited to no more than 10% of their new lending to low-deposit borrowers, house price inflation has declined and credit growth has stabilised.

Price said the point of the analysis was to determine how much of that was due to the LVR rules, and how much was affected by other factors.

“An estimated counterfactual scenario suggests that, in the absence of the LVR policy or any other housing-specific shocks, house price inflation could have been 3.3 percentage points higher and household credit growth could have been 0.9 percentage points higher (on an annual basis to March 2014). The LVR restriction is the most likely explanation for that result.”

The report shows that the market started to weaken compared to the counterfactual scenario as soon as the rules were implemented. Activity declined, with house sales and mortgage approvals fell significantly below the counterfactual scenario, and days to sell increased.

Price wrote: “House price inflation declined below the counterfactual scenario, although not significantly – as at March 2014, annual house price inflation was 3.3% below the counterfactual scenario. Annual household credit growth fell modestly below the counterfactual scenario, reaching 0.9% below by March 2014, while housing-related credit growth also declined below the counterfactual scenario. Residential building consents rose above the counterfactual scenario.”

The fall in house sales was larger than had been estimated, which Price said could have been because of a rapid reaction from market participants. Banks started to cut back on their high-LVR lending before they were required to.

“It is possible that house sales may recover as the market adjusts to the new policy regime, especially if banks make more use of exemptions, as was initially expected.”

Price said house prices had not declined significantly, possibly partly because the rules were skewing the composition of sales, making house prices appear higher than they otherwise would.

Household credit growth had responded  slowly to the weaker housing market, partly because there is a lag of several months between the sale of a house and the corresponding housing loan being drawn down.

Price said credit growth was likely to fall further below the counterfactual scenario in coming months, based on the decline in activity already seen.

« Rising home loan rates a fait accompli Bad broker Buddle changes plea »

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Comments from our readers

On 16 May 2014 at 1:40 pm Amused said:
“An estimated counterfactual scenario suggests that, in the absence of the LVR policy or any other housing-specific shocks, house price inflation could have been 3.3 percentage points higher and household credit growth could have been 0.9 percentage points higher (on an annual basis to March 2014). The LVR restriction is the most likely explanation for that result.”

Counterfactual analysis….sigh.

Well there you go folks. At least the academics at the Reserve Bank think their LVR policy has made a difference to combating house price inflation in Auckland. And we ARE talking about Auckland let’s make no bones about it.

Now we know that the academics at 2 The Terrace Wellington are well and truly calling the shots and desperately trying to justify what was and still is a failed policy because it does not address the key drivers of Auckland’s runaway housing market i.e. increased migration, lack of available housing stock, kiwi property traders and speculators and non-residents been allowed to continue to own residential property in New Zealand.

Until the Reserve Bank, Government and the Auckland City Council start looking for practical solutions to these “real” issues behind Auckland’s problems LVR restrictions are only going to enable the academics at the Reserve Bank to proudly trumpet they stopped a few percentage points off housing inflation for the last few months. Well done Reserve Bank! you are doing the taxpayer who pays all your fat salaries proud.

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
ANZ 5.19 4.15 4.09 4.49
ANZ Special - 3.65 3.59 3.99
ASB Bank 5.20 4.15 4.09 4.39
ASB Bank Special - 3.65 3.59 3.89
BNZ - Classic - 3.65 ▼3.54 3.99
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 3.19 3.19 3.19
Lender Flt 1yr 2yr 3yr
Credit Union Auckland 5.95 - - -
Credit Union Baywide 6.15 4.95 4.95 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 - - -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
Housing NZ Corp 5.19 ▼4.15 ▼4.09 ▼4.39
HSBC Premier 5.24 3.35 3.35 3.35
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 5.65 3.85 3.95 3.89
Kiwibank 5.80 4.30 4.34 4.74
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - 3.55 3.59 3.99
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.69 4.79 -
Resimac 5.30 4.86 4.14 4.19
Lender Flt 1yr 2yr 3yr
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - 3.69 3.69 3.99
Sovereign 5.30 4.15 4.29 4.55
Sovereign Special - 3.65 3.75 4.05
The Co-operative Bank - Owner Occ 5.15 3.65 3.59 3.99
The Co-operative Bank - Standard 5.15 4.15 4.09 4.49
TSB Bank 6.09 4.65 4.59 4.85
TSB Special 5.29 3.85 3.79 4.05
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.34 - - -
Westpac Special - 3.65 3.59 3.99
Median 5.35 4.15 4.09 4.19

Last updated: 16 September 2019 10:03am

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