The Reserve Bank of New Zealand’s indication that the loan restrictions (LVR) imposed last year will be eased toward s the end of 201 has come as a relief for many first-home buyers as well as home sellers.
This is welcome news for provincial New Zealand, where the restrictions
have had a significant impact on an already weak market, says Hayden Duncan
Chief Executive Ofﬁcer of Harcourts New Zealand, one of the leading real estate agents.
“In the Central, Wellington and South Island Provincial regions average sale prices remain in the $300,000s and have done so for a number of years. LVR restrictions were not needed here and have prevented first home buyers achieving the dream of home ownership.”
“In Auckland and Christchurch the overheated markets are the result of
simple low supply and high demand.” Hayden suggests fast tracked
and quality construction in these two cities as the best way to sensibly
moderate rising costs.
The restrictions will go at the right time as New Zealand expects net migration to grow in the next 12 to 18 months.
“The divergence in the annual budgets with spending slashed in Australia and tax rates rising, versus scope for tax cuts here in New Zealand down the track will reinforce the massive switch in Trans-Tasman migration flows underway,” says Tony Alexander, chief economist of Bank of New Zealand.
“Before the end of this year it is likely that for the first time since 1991 there will be a net gain to our population from Trans-Tasman flows.”
However, the reserve bank governor’s comments come with caveat. “Before removing them (LVR), we want to be confident that the housing market is responding to interest rate increases; and that immigration pressures are not causing a resurgence of house price pressures. It will take some time to gain this assurance. At this stage we consider the earliest date for beginning to remove LVRs is likely to be late in the year.”
That’s a tall order, and the removal of LVR remains a speculation at this stage, and Tony Alexander believes that it is unlikely that the LVR restrictions will be relaxed by the end of the year.
“The rules are doing the job of about 0.25% – 0.5% worth of official cash rate rises. Were the rules to be removed then the OCR would need to be that amount higher than would otherwise be the case.
“Given that rising interest rates lift the Kiwi dollar and that this is something the RB would like to avoid, one condition which would have to be met is a falling NZD. Is that likely?”
The Reserve Bank had introduced the loan-to-value ratio (LVR) restrictions in October 2013 to help lower house prices, and avoid the risk of a housing bubble building up.
New Zealand banks were given a six-month window to comply with the new speed limits restricting new high-LVR lending at no more than 10 per cent of their total lending.
A high-LVR loan is where the loan is more than 80 per cent of the value of the property.
However, banks over-estimated their LVR lending and applied stronger breaks resulting in high-LVR loans falling to 6%, much below the apex bank’s 10% target.
The high-LVR loans were as high as 25% in September 2013, just before the restrictions were applied.