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End of LVR rules: advisers react

Advisers have welcomed the Reserve Bank's decision to end loan-to-value ratio restrictions, but are divided on whether it will change lending behaviour.

Monday, May 4th 2020, 8:41AM 1 Comment

Last week the RBNZ announced LVR restrictions would come to an end after nearly seven years, following the Covid-19 outbreak. 

There will be no central bank limits on high LVR or investor lending for at least 12 months.

While the decision is designed to bolster the lending market, advisers are divided on how it will affect home loan availability.

Some expect the expansionary policy will help banks' risk appetite. Others say lending will remain tight.

Charles Spilhaus, of Steve Sale Insurance & Mortgages, says: "It will inevitably effect the banks’ assessment of lending."

Spilhause says the distinction between owner-occupied and non-owner occupied "will essentially be lost". 

"So this will facilitate more lending for various purposes whether for business or investment or up-trading of owner-occupied property or consumer purposes," Spilhaus added.

Spilhaus hopes banks will re-evaluate their position on bare sections and new build developments, a "principle that make take time to change".

Some advisers say banks are unlikely to overhaul their tight internal controls. 

"I’m not sure the move on LVRs will make any difference as long as banks are testing people at 7-8% rate for servicing loans," said one adviser. 

Another TMM reader commented: "As usual it seems that the people in charge at 2 The Terrace Wellington don’t actually understand the numerous restrictions been imposed on our banks nowadays by the likes of APRA when it comes to banks lending money to customers."

David Green, a lending specialist at adviceHQ, says the Reserve Bank and trading banks "have opposing views".

"The RBNZ has an expansionary policy with lower OCR, removing LVR restrictions and underwriting lending.  On the contrary, banks have to protect the interests of their shareholders when market volatility is high, meaning credit policies are tightened.  While these views differ, the RBNZ and lenders have to act in the best interests of customers," Green added.

Green believes the government's backing for small businesses will give banks more appetite to take on more home lending risk.

He says the decision to end LVR gives banks "more flexibility to assist customers in times of need". 

Green added: "It also provides additional funds to well capitalised investors to help the RBNZ stimulate demand. The caveat being the lenders' appetite for risk, something the government has now addressed by stepping in and providing their own funding lines to small businesses."

Tags: Lending LVR

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Comments from our readers

On 4 May 2020 at 9:43 am JeffQV said:
We simply don't know how the banks will react, or the non banks. My gut is more success for quality applications and more declines for marginal applications. Lenders have to balance their books and LVR is only one piece of the jigsaw.

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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 3.19 3.19 3.49
AIA Special - 2.69 2.69 2.99
ANZ 4.44 3.15 3.25 ▼3.39
ANZ Special - ▼2.55 ▼2.69 ▼2.79
ASB Bank 4.45 3.19 3.19 3.49
ASB Bank Special - 2.69 2.69 2.99
Bluestone 4.44 4.44 4.44 4.44
BNZ - Classic - 2.65 2.69 2.99
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.25 3.29 3.59
Lender Flt 1yr 2yr 3yr
BNZ - TotalMoney 4.55 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 4.75 4.75 -
Credit Union South 5.65 4.75 4.75 -
First Credit Union Special 5.85 3.35 3.85 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
Heretaunga Building Society 4.99 4.35 4.45 -
HSBC Premier 4.49 2.60 2.65 2.80
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 3.99 2.58 2.68 2.79
Kainga Ora 4.43 3.29 3.39 3.85
Kiwibank 3.40 3.40 3.54 4.00
Kiwibank - Capped - - - -
Kiwibank - Offset - - - -
Kiwibank Special 3.40 2.65 2.79 3.25
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Lender Flt 1yr 2yr 3yr
Resimac 3.49 3.45 3.39 3.69
SBS Bank 4.54 3.29 3.19 3.49
SBS Bank Special - 2.79 2.69 2.99
The Co-operative Bank - Owner Occ 4.40 ▼2.69 ▼2.75 ▼2.99
The Co-operative Bank - Standard 4.40 ▼3.19 ▼3.25 ▼3.49
TSB Bank 5.34 ▼3.35 3.49 3.79
TSB Special 4.54 ▼2.55 2.69 2.99
Wairarapa Building Society 4.99 3.75 3.99 -
Westpac 4.59 4.15 4.09 4.49
Westpac - Offset 4.59 - - -
Westpac Special - ▼2.55 2.69 2.79
Median 4.55 3.19 3.22 3.39

Last updated: 10 July 2020 9:02am

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