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LVR limits will return for investors: Alexander

The odds of LVR restrictions returning for investors next year are "fairly high" due to the strength of the residential property market, according to economist Tony Alexander.

Friday, October 16th 2020, 5:37AM 3 Comments

At the end of April, the Reserve Bank scrapped loan-to-value ratio restrictions for owner-occupiers and investors for one year, removing previous LVR "speed limits" on what the banks could lend. 

The decision, along with the official cash rate cut in March and vast quantitative easing programme, have boosted the housing market through 2020 in spite of the global pandemic. 

Latest REINZ data reveals that 8,377 properties sold nationwide in September – which was a 37.1% year-on-year increase.

Investors have dived back into the market in recent months, borrowing more at high LVRs.

As the housing market continues to heat up, leading economist Tony Alexander believes the central bank will reintroduce LVRs for investors come May next year.

"I think that the chances of the 30% deposit requirement coming back for investors are fairly high given the strength in the residential real estate market," Alexander told TMM Online.

The outlook may be different for owner-occupiers and first home buyers.

Recent comments from the Reserve Bank indicate it views the recent surge in house prices as helpful to the economy. Officials recently said falling house prices would be the "worst-case scenario" for our economy as it recovers from the Covid recession.

Alexander said the RBNZ may be more inclined to extend the LVR-free period for owner-occupiers.

"Given the bias which the Reserve Bank has toward generating as much momentum as possible in the economy, they may hold off reimposing those requirements for a few months after May. But this far out, it's still fairly much a guessing game," he said.

Tags: Lending LVR Tony Alexander

« Tough conditions for self-employed borrowers High LVR lending: what does the data say? »

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Comments from our readers

On 16 October 2020 at 12:46 pm Amused said:
The penny finally drops! The Reserve Banking removing the LVR restrictions for investors earlier in the year and most banks subsequently lowering the deposit requirements on investment mortgages was always going to end up inflating house prices making it even harder for owner-occupiers to purchase a home.

With interest rates been so low now it was obvious to anyone with half a brain that investors would rush back in to buy properties wanting to secure a better return. The Reserve Bank not been able to foresee this scenario happening is very troubling. The taxpayer is certainly getting good value for money for all the supposed economic experts employed up at 2 The Terrace Wellington.

Phil - it would be great if yourself or a fellow journalist could directly ask Governor Orr and his cohorts what they were thinking when this decision was made back in April? This mistake by the Reserve Bank needs to be corrected now - not next year!
Owner-occupiers are currently having a hard enough time as it is trying to secure a property with so few homes been listed for sale. It's an unfair playing field with owner-occupiers not having the same access to cash or equity that most investors do. This isn't rocket science but seems to be too complex for the Reserve Bank to understand (sigh).
On 16 October 2020 at 3:17 pm Skeptical said:
@Amused
I'm pretty sure they were incredibly clear when they removed the requirement that their intention was to not penalise people for exercising mortgage deferrals and providing people with rental breaks. If there wasn't growth to the pricing and people had done so at 70% borrowing they'd find themselves back above that line and unable to qualify at any bank.
On 20 October 2020 at 9:15 am Amused said:
@ Skeptical
If that really was the rationale behind the Reserve Bank’s decision in April to remove the LVR restrictions for "investors" then I am even more worried about the competence of the decision makers up at 2 The Terrace Wellington. It’s this kind of woolly minded academic reasoning that demonstrates the Reserve Bank has lost touch with the New Zealand housing market and what factors most influence house prices. Every day this decision made by the Reserve Bank in April pushes more and more housing stock around the country out of the reach of owner-occupiers. No surprise then that we have now had two economists state publicly that the LVR restrictions for investors will likely have to be reintroduced.

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Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 ▼3.09 3.25 3.39
ANZ Special - ▼2.49 2.69 2.79
ASB Bank 4.45 2.55 2.69 2.79
Bluestone 3.49 3.49 3.49 3.49
BNZ - Classic - 2.55 2.69 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.15 3.29 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
Lender Flt 1yr 2yr 3yr
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 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online 2.95 1.99 2.35 2.45
Heretaunga Building Society 4.99 3.50 3.40 -
HSBC Premier 4.49 2.45 2.60 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.45 2.65 2.79
Kainga Ora 4.43 2.93 3.07 3.24
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.40 3.30 3.54 3.54
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.55 2.79 2.79
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.35 2.99 3.35
Lender Flt 1yr 2yr 3yr
SBS Bank 4.54 3.05 2.99 2.99
SBS Bank Special - 2.55 2.49 2.49
The Co-operative Bank - First Home Special - - - -
The Co-operative Bank - Owner Occ 4.40 ▼2.49 2.69 2.79
The Co-operative Bank - Standard 4.40 ▼2.99 3.19 3.29
TSB Bank 5.34 3.29 3.45 3.59
TSB Special 4.54 2.49 2.65 2.79
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 ▼3.09 3.29 3.39
Westpac - Offset 4.59 - - -
Westpac Special - ▼2.49 2.69 2.79
Median 4.55 2.94 2.99 2.80

Last updated: 29 October 2020 5:00am

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