Mortgages

LVR easing will prompt modest growth

Don’t expect the housing market to take off at a runaway pace following the Reserve Bank’s announcement that the LVR restrictions will be eased from early next year.

Wednesday, November 28th 2018

Most commentators believe the loosening of the LVRs is likely to lead to modest growth in the housing market – but that’s about it.

Westpac senior economist Michael Gordon expects that the response to the changes will be similar to what was seen after the easing of the LVR limits last November.

“There was a small, temporary lift in house price growth, but it’s difficult to separate the impact of the LVR changes from the decline in mortgage rates at the time.”

He says here has been quite a sharp fall in mortgage rates in recent weeks, which could help to boost house prices in the early part of next year just as the new LVR limits take effect.

“However, other policies aimed at dampening housing speculation, such as the extended bright-line test and the impending phasing-out of negative gearing, are expected to keep house price growth contained over the coming years.”

ANZ senior economist Liz Kendall agrees. She says they anticipate that this easing will boost the housing market, but only a little, with the restrictions remaining “tight” overall.

“The Reserve Bank has signalled that further easing in the restrictions can be expected if risks continue to diminish.

“We expect that further easing will occur in time, but that the Reserve Bank will continue to tread cautiously.”

For CoreLogic senior research analyst Kelvin Davidson, the easing of the LVR rules may provide a kick-start to sales volumes provided more borrowers can secure loans, but it’s not a guaranteed outcome.

"After all, lenders may choose to continue on their cautious path, especially since today’s Financial Stability Report also highlighted the Reserve Bank’s view that ‘higher capital requirements are necessary, so that the banking system can be sufficiently resilient whilst remaining efficient’.

"In other words, a requirement in future for the banks to hold higher capital buffers would tend to dampen lending flows.”

But ASB chief economist Nick Tuffley, who was a little surprised at the changes for investor LVRs, says the housing market has been at an interesting juncture recently, with sales turnover and listings rising sharply in October.

"But mortgage rates have been falling for months, with sub-4% rates now available to borrowers with 20% equity.  House price growth has been strong in a number of provinces and been accelerating in some.

"So relaxation of the LVR restrictions is not without some risk, even though Auckland risks are slowly dissipating through a sustained period of flat prices."

Meanwhile, NZ Property Investors Federation executive officer Andrew King doesn’t expect the easing to have much impact on investor behaviour.

He says it is good that the loosened LVRs will now allow investors to have a 30% deposit rather than a 40% deposit.

“But, given all the other things that are going on for investors in terms of policy and tax changes, I don’t think it will lead to a big increase in the supply of rental properties due to investors rushing out to buy again.”

Read more:

LVR restrictions eased for investors 

FSR preview: will the Reserve Bank loosen LVR restrictions 

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