RBNZ targets residential property investors with new high LVR restrictions: Most investors to need 40% deposits and most owner-occupiers 20% deposits

RBNZ targets residential property investors with new high LVR restrictions: Most investors to need 40% deposits and most owner-occupiers 20% deposits

The Reserve Bank (RBNZ) is cracking down on bank lending to residential property investors, announcing it will reinstate tougher loan-to-value ratio (LVR) restrictions than were in place last year.

From May 1, at least 95% of new bank lending to residential property investors will have to go to borrowers with deposits of at least 40%.

As an interim measure, from March 1 to April 30, this deposit requirement will be set at 30%. This is the same level LVRs were at when they were removed in May 2020 due to COVID-19.

The RBNZ is taking a staged approach to enable banks to manage their pipelines of loan applications that have been approved but not yet settled.

But it expects lenders to respect the 40% rule "immediately with all new loan approvals".

As for owner-occupiers, from March 1, at least 80% of new bank lending will need to go to borrowers with deposits of at least 20%.

This is the same level LVRs were at before they were removed last year.

The owner-occupier level won’t be hiked in May like the investor one.

This RBNZ graph shows the jump in high-LVR lending to investors from the time the rules were removed (note deposits of less than 30% constitute high LVR lending to investors, while deposits of less than 20% constitute high LVR lending to owner-occupiers, including first-home buyers):

RBNZ Deputy Governor and General Manager of Financial Stability Geoff Bascand said LVR restrictions were removed last year "to ensure they didn’t interfere with COVID-19 policy responses aimed at promoting cash flow and confidence".

“Since then, in part due to the success of the health and economic policy responses, we have witnessed a rapid acceleration in the housing market, with new records being set for the national median price, and new mortgage lending continuing at a strong pace," Bascand said.

“We are now concerned about the risk a sharp correction in the housing market poses for financial stability. There is evidence of a speculative dynamic emerging with many buyers becoming highly leveraged.

“A growing number of highly indebted borrowers, especially investors, are now financially vulnerable to house price corrections and disruptions to their ability to service the debt. Highly leveraged property owners, in particular investors, are more prone to rapid ‘fire sales’ that potentially amplify any downturn.

“These financial stability risks exceed the situation at the time of the Bank’s December LVR consultation, resulting in more restrictive policy settings being decided on."

The RBNZ consulted, between December 8 and January 22, on reinstating the same LVRs that were in place in 2020. 

ANZ on December 15 announced it would start requiring investors to have 40% deposits. ASB and BNZ last week announced they would follow suit.

The RBNZ said a summary of submissions would be released alongside a regulatory impact assessment in due course.

The new rules again:

From 1 March 2021:

  • LVR restrictions for owner-occupiers will be reinstated to a maximum of 20% of new lending at LVRs above 80%.
  • LVR restrictions for investors will be reinstated to a maximum of 5% of new lending at LVRs above 70%.

From 1 May 2021:

  • LVR restrictions for owner-occupiers will remain at a maximum of 20% of new lending at LVRs above 80%.
  • LVR restrictions for investors will be further raised to a maximum of 5% of new lending at LVRs above 60%.

Reinstating the LVR policy will also reinstate the existing exemptions applying to the LVR restrictions for both owner-occupier and investor mortgages, including:

  • A new build exemption where the borrower commits to the purchase at an early stage of construction or buys the residence (within six months of completion) from the developer;
  • Kāinga Ora’s First Home Loans scheme (formerly Welcome Home Loans), for low deposit borrowers to buy their first home; and,
  • Loans for remediation required to bring a residence up to new building codes, or to comply with new rental property standards (for example, installing insulation).

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

163 Comments

47
up

Too little too late. It's the kiwi tradition.

16
up

Banks have taken the lead and were already doing this. When did that last happen, makes you wonder what they know that we dont.

Nothing short of DTi or a tax base change will slow the greed train down.

You're supposed to say that it's good to see RBNZ taking the banks lead (and essentially is doing nothing).

28
up

I am so baffled by how it took them overnight to remove LVR restrictions but takes them months and months and months to reinstate it!!!!????? What am I missing? Didn’t Orr make a mention of this in September last year? Won’t take effect till May this year? Why?

28
up

You know why. Its not meant to be an effective step. Its just to take the heat off the damning report that came out last Friday.
They don't actually know what to do and are stuck.
Covid was the best opportunity they could have got to let some of the air out of the bubble but instead they threw the pumps into afterburner mode.
I've decided that I've had enough and will move to Aus once I've got my affairs in order.

They don't want to appear to panic and set off a chain of events. The way the banks have been the ones to indicate that they've had their fill is interesting

14
up

To the pint, I've spoken to so many people who are thinking to move to Aus once things settle, it's not even funny. I suspect only "property investors" will be left here in good old NZ. What else is here for the future?

Great user name

Just so you know.. RBA is just as clueless

They are all in on it.

12
up

I heard Orr has 4 houses so that is about 2000($500 x 4) reasons a day to string it out a bit longer. Think Jacinda has 2 properties so she has 1000 reasons a day not to intervene.

Can anyone verify this? The fact that NZ politicians have long had multiple properties (on average) has been an issue for several years.

This is correct for Adrian, he had 4 property titles in his name when I checked last year. He's also a director or shareholder in a bunch of companies, couldn't be bothered checking if any of them are just property investment vehicles.

Assume this is also true for Jacinda, it's the kind of thing the media would have written some vapid article about.

Jacinda only has the family home according to the Gov declaration for MP's. The updated list for 2020 will comes out in March/April.
But I assume that Clarke has properties under his name and as they are not married she does not have to declare it.

Have they been together 3 years... relationship property. The dodgy pollies need to be consistent

Im not 100% if it is due to them not being married. i didnt get to look into the criteria.
Was on there a few weeks ago and people on twitter were posting about how many MP's had properties.

Irrelevant per the LVR. This will only apply to 'NEW' buys, unless the bank decides you're too high a risk and asks you to stump up a bit more capital. Very rare if ever done in NZ I would think.

You do realise he earns > $3000 a day as Governor right? Maybe he’s got an incentive to stay in work, hence why he’s meeting the PTA.

You lose value in money by flooding the world with it. Want to make property values flatten ? Flood markets with it..

The solution to property prices spiraling is simple: BUILD BUILD BUILD. (re-zone, govt funded infrastructure, if it meets building code and HH standards then council shouldnt be able to turn it down because the council worker just watched the block and saw Shana Blaze dis a certain tree/colour/look/feel...

Message has to be sent through central and all local governments.

No one cares if your development has the wrong type of pine trees or has a cladding that doesn't perfectly fit the look and feel of the existing area.

PEOPLE ARE LIVING IN SHEDS AND CARS AND DYING - And local councils still care about this minor shit.

Time to build - across parties, across central/local, just F'N make it happen and DO NOT deliver me another 'working group' to look into things.... this problem was solved in 2006 and the solution confirmed through every Demo-graphia report (HUGH PAVLETICH NZ input into this as were Sir English, and former RBNZ Gov's that lost popularity due to a stance that all NZ'er were created equal...)

Bill English would have had all this far better under control than our current chubby funster finance minister who thinks writing a letter to the rbnz asking to incl housing (along with already CPI, and employment) into their mix is a good move. No Robo, the move lies with YOU.

I would love to BUILD build Build on our residential site in a good suburb which we bought 2017 ... Crazy council rules and redtape driving us nuts and poorer. Still stands vacant

Hi Broc, not kiwi tradition but kiwi politicians

61
up

BREAKING NEWS! Lending practices back to where they were a year ago when houses were already severely unaffordable!

22
up

....except now you have to have 20% of a number that's 30% bigger than when you last had to have 20%. Doesn't take a rocket surgeon to figure out what this will do for FHBs who don't qualify for the Welcome Home Loans or who aren't building, does it?

They will move to Aus, demand will reduce, with a concomitant effect on prices. The market. Bam.

In other breaking news, those same houses are now severely severely unaffordable as house prices have risen at least 20% in a year and are set to fly even higher!

33
up

Cash deposits or claims on unrealised collateral equity?

12
up

shhh you're saying the quiet bit too loudly.

10
up

Yes, but claims on unrealised collateral equity requires security to be taken on that collateral and those assets will themselves then need to meet the LVR ratio. Let there be no doubt this is a powerful step taken by the RB, just as the removal of the LVRs last year was a powerful (and greatly flawed) move. It is just a pity that reversing last year's LVR removals has been so long in coming.
KeithW

Let there be no doubt this is a powerful step taken by the RB

Very diplomatic Keith. RBNZ would like to hear such support.

J.C.
If you read my posts you will see that I have been very critical of the RB over the last nine months, and I remain very critical of them in relation to key aspects of monetary policy. However, I always try and go where the evidence leads me, and in this case my assessment is that the effects of the new LVRs will be powerful. What is less clear to me is how quickly it will show up in terms of moderating price increases, which currently are still rocketing along. It will first show up in bank approvals, then in real estate sales, and then in official statistics. It is a tragedy and an indictment of the RB that they did not realise their error back in the spring when those out in the 'field' could actually see what was happening, whereas the RB was only looking in the rear mirror.
KeithW

kw,

"this is a powerful step". I doubt it. As someone else posted, this only restores the status quo of a year ago when properties were severely unaffordable. Why not require a deposit of 60% or even more? Why allow speculators to use leverage at all?

Linklater01,
A deposit requirement of 60 percent may well crash the house market. And that would become a huge crisis. But I would have been very happy with 50 percent. The key issue will now become what the RB does with its QE and inflation policies. We still have a lot of investors searching for a safe haven for the money they currently have in bank deposits.
KeithW

We still have a lot of investors searching for a safe haven for the money they currently have in bank deposits.

Well I think you just nailed a major issue right there. Arguably, banks should be the 'safe haven' for people's money. But no, they've (the banks) decided to double down on a property bubble instead.

i would like them to stagger deposit requirements ie 40% for first investment property, 60% for second new investment property, 80% for third investment property etc etc. Need to minimise incentives.

Not crashing housing is a crisis. All the new LVR is doing is adjusting the leverage, it is still leverage. The longer it is stopped from unwinding the worse the outcome will eventually be.

The new LVR will curtail many of the big investors and that is important. The problem is that it has come to late. Whatever the outcome, it is going to be painful for some.
KeithW

claim:
: a right to something specifically : a title to a debt, privilege, or other thing in the possession of another The bank has a claim on their house.

And it still hasnt come... at least another 3 months

This is an expected RBNZ announcement.
Let's hope Robertson's flagged "Bold" initiatives go much further. Much....

23
up

Bold action would be him at the rest of the lying hypocrites in the Labour party performing ritual seppuku to atone for their incompetence.

What will actually get is more of their "sustained moderation" horse ****.

My forecast for this year was Labour breaking their promise of no new taxes and introducing a form of CGT (targeted at residential property) or LVT. For the sake of the country, landlordism must be stopped for good.

Na, they'll lose the next election if they do that. Need to keep middle NZ on their side of the line. That's more important than actually fixing the problem.

If the non-homeowning portion of their base gets too frustrated they flee to the Greens/TOP before they flee to the Nats. Then they just have a coalition government. Big whoop. Still in power.

Retaining power is the end goal of any and all political actions in a democracy. Gotta stay cynical :)

Maybe they could put in a new Bill that sets limits on investment property, codifies the LVRs for investors so the RB can't meddle with the market.

13
up

Do they realise it's only February and the markets well out of control? What's with all the delays in implementing the LVR restrictions (30% LVR 1st March & followed up with 40% 1st May). RBNZ has clearly timed this with Robertsons announcement this morning and pending budget. Pathetic PR bullcrap.

11
up

All the banks are already requiring 40% - its only Westpac that hasn't moved.

What's the banks tolerance levels to go outside their own set LVR limit? Nothings being imposed yet so they're free to do what they want.
Why don't RBNZ just impose the LVR restrictions now, what's the delay?

It does say they expect banks to implement immediately in advance of the change. So from memory they all start almost immediately.

Some applications would have already been prepared, filed and approved based on lower LVR requirements. It's bad enough manipulating the market with notice, let alone without.

Yeah just require banks to apply 30/40% LVR restriction on any new application submitted. Existing pre-approvals stand until their expiry date.

A lot of work wasted in preparing an application only for the rules to be changed without notice before it is filed and considered. It is fairer to use a future date otherwise resources would have been wasted in cases where new criteria is unable to be met (may even result in claims for a refund of due diligence and application costs). No need to panic and act unreasonably.

Compared to the pain suffered by those locked out of the housing market, a few futile forms don't amount to much. The current approach seems fair - start doing it with new applicants now so you're in compliance in a month or two. Most of the banks saw it coming and started getting things in line already.

Well if the banks are already doing it then no need for RNBZ to impose changes immediately.

HeavyG...does it really matter? Bankers and property investors time is almost worthless anyway.

What's the delay? LOL - why do it today when you can just kick it down the road for a few more months. (sarc.)

It's because the RBNZ limits are based on a 3 month rolling total.. so implementing it now drags in loans already advanced in January and December.

I'd like to think LVRs back at 40%, Robertson hopefully extended bright-lines indefinately not on a time year period, interest rates at their stone bottom (with potential to rise over the next couple years) and the new rental laws will see a good size pullback from investors. However, as per normal, as supply is so far behind this will at least put % growth back in single digits...

Simply extending the bright-line test in its current form won't be enough. The legislation is open to interpretation and highly-skilled tax specialists can run circles around IRD staff.

On could even suggest (assert) the Key government was reluctant to move against speculation and may have designed the legislation giving an upper hand to speculators who could afford costly tax planners.

How exactly does one plan around the Brightline test?

No change to interest only loans....equity level is only one part of the equation... having the cashflow to service and repay the loan is other... hard to take anything they come up with as serious..

Very true. As interest rates go lower, the portion of repayments eaten up by the interest payments decreases. Allowing interest only loans greatly tips the scales in favor of investors, and greatly increases the risks to financial stability.

Suspend auctions when the market is overheated. Negotiation or listed price only for now.

Perhaps you are right. The government has banned rent bidding. So if it is good enough for rent bidding / auctions to be banned for rentals why not the same for selling. Oh silly me I forgot the politicians and their advisors seem to engage in that sort of stuff. What is good for the goose is good for the gander.

Auctions are not too bad compared to Wellington favourite sales method of Tenders- where bidders are encouraged to put their maximum bid in to avoid missing out. We were in a tender in Nov and missed out - we were the second highest bidder (as advised by the Real estate agent) - the successful bidder paid 46K more than our offer. Guess what the new benchmark for sales are in that suburb.

At least with Auctions you can see and hear the person bidding and only need to pay $1 more than the other guy - with tenders your completely blind.

Agree. I'll take an auction any (edit) day. Way more transparency and less faffing around. If the price is too high, you simply don't bid and at least you know what the price is.

16
up

Equivalent to pissing on an Australian bush fire.

15
up

Boom, there we go.

TRANSFORMATIONAL!

Gawd, what a joke these guys are.

From now on I'm voting Maori party, they're the only ones that ever stand a chance of doing something worthy on housing and poverty.

"Maori party, they're the only ones that ever stand a chance of doing something worthy "

Ahem, no

...silly for removing it in the first place.

20
up

All this flip flopping, lucky they're not in charge of anything important...

anyone missing Nationals?

haha.

Labour is not only useless but also ignorant.

13
up

No

10
up

Would you have Mr Luxon for PM xing? (fear not, i'm not expecting you to actually answer that)

The CEO of our national carrier that thought it was ok to work on Saudi military equipment...

I hope Labour dine out on that for decades to come.

11
up

Explain to me how National would do better...
Oh wait, you never answer questions.

11
up

Funny, this wasn't how the burden of proof worked when Labour was making up unworkbale, pie-in-the-sky campaign promises in 2017.

Just look at how house price inflation has been higher under Arden that it was under Clarke and higher under Clarke than it was under Key. In the last 20+ years, Labour governments have driven (safe haven asset) house prices up far faster than National ones.

Sell our souls 100% to the CCP and be ruled by his beloved CCP...

Why are you bringing up Labour on an article about the RBNZ? You know they are different things, right?

Am I right that the lvr implemented at individual bank level is on individual loans where as the lvr restrictions from RBNZ are on the total loan book?
On the weekend I learnt from two different vendors locally that they'd both signed sales within 24hrs of listing. Only one is conditional and that only on finance, no reports at all.
...... Pop

Unfortunately that is the market right now. If you want to buy a house you almost have to make an unconditional offer and just hope for the best that there is nothing significantly wrong. Most properties get multiple offers and conditional offers are at a severe disadvantage.

I agree with your comment regarding reports. A lot of people in ChCh are jumping into EQ damaged homes that have been 'repaired', painted white, carpet on the floors, tiles over cracks, etc.

Another 3 weeks to fill your boots - way to late!

Actual cash deposit (not equity on existing property) should be 15% and No interest loans should be abolished for future rental investments. Then something may happen. Otherwise it is just another cosmetic exercise of shifting numbers and using differnet shades on existing brushes.

14
up

40% deposit for speculators is way too low: it should be at least 60%, ideally 80%, and it should be cash (not equity from another property).
On the other hand, 20% deposit on owner-occupiers is a bit too high.

And in any case the RBNZ have again shown their incompetence and their ridiculous slowness in (not) managing the dangerously inflated NZ residential housing Ponzi.

12
up

I'm curious. this policy is only for 95% of investors? What does it take to qualify for the remaining 5%? Richer, wealthier, already own 1000 houses or more, temper tantrum, friends of the Government, or be an MP?

I believe its for urgent lending like if your equity is maxed out but your roof caves in and you need a new one for example

I welcome this change but at least as big an issue as investors competing against first home buyers is Developers paying premium prices to secure sites for future development. Both Government and Council want higher density housing so there is unlikely to be any changes to this type of buyer. What it does mean in practice is that the top price in areas are being pushed up and in many cases these "brown field" sites sit vacant, demolished or have dubious short term rentals. Net result in the short term is less housing stock.

Betram Grove very cheap rents 370pw on average for big home.

I think you missed the point. Price expectations are between $1.5-2.0M for each - based on development potential given the size of the land parcels. Check it out yourself by ordering all Hutt properties by highest price.

I decided to dive a bit deeper Kate and plus my point should have been up your alley as the rent policeman / person. Sometimes the agent marketeer is overly creative and doesn't care what's viable

If you are saying you think the price expectations are nuts - I agree.

17
up

This will have little if any impact. The deposit is coming from equity release on existing portfolios. I know that..you all know that.. and the reserve bank knows that. Only people not playing in the property dont know that.. and that is the target market of this propaganda volley. They are not trying to fix anything... Remember the RB are all property investors... and turkeys don't vote for christmas

Less equity able to be accessed always has an impact. I presume you would not support the scrapping of LVR restrictions?

HeavyG...I would as long as the bank capital requirements were raised to at least 30% to ensure the tax payer wasn't on the hook for the banks reckless lending via another bank bailout paid for by us.

LVRs can only work if they come from a taxed income stream. Releasing equity enables property investors to reinvest property gains tax free. So in the current form LVRs are only a hand break on the first time buyers. LVRs must be in conjunction with deposits notcoming from equity release. Investors must stump up the 40%.

No CGT in NZ (unless the 5 year Brightline test applies). Inefficient to require sale to cash up only to reinvest. Good for lawyers and real estate agents only.

Just tax the release of equity as income...if you are spending it, it is income.

You can sell a residential investment property you have owned for 6 years tax free in NZ. Why should you pay tax if you are merely using the equity instead. Surely you would require a capital gains tax on a sale before looking to extend it to accessing equity without a sale.

Because you are not selling it.Simply taking a tax free income

As much as I dislike the idea of equity debt stacking, I don't deem it as "income". It is a loan, and does need to be paid back.

I think go for gold on equity releasing for investment purposes, but it is a business practice and should come with business lending rates.

Tail wagging the dog. Banks have already done it, this is just catchup stuff from RBNZ. When the corporate sharks have to restrict themselves in absence of legislation to ensure financial system stability, that's when you know the regulator is no longer doing their job.

Thank goodness. Property investment back in the hands of the elite.

I was thinking that, we can't have people getting ahead and taking risk.

According to the Reserve Bank, the new capital requirements mean banks will need to contribute $12 of their shareholders' money for every $100 of lending up from $8 now, with depositors and creditors providing the rest.

I'm assuming you aren't referring to mortgage lending - because they currently hold about $3 in capital for every $100 lent.

Various regulatory capital minimums apply. For example, excluding additional capital buffers, the ratio of common equity to risk weighted exposures cannot be less than 4.5% (if the ratio is less than 7% restrictions apply to the distributions that can be paid to capital investors). Total Tier 1 must be at least 6% of risk weighted exposures (8.5% if distributions are to be unaffected) and total capital must be at least 8% of risk weighted exposures (10.5% if distributions are to be unaffected). section 101 page 25-26 of 57-PDF

You've missed the point entirely. What really matters is how the banks calculate RWA's.

The point is bank depositors are most exposed to the instability of a real estate bubble fostered by excessive bank lending to this sector.

I had this to say, earlier today, on another thread:

by Audaxes | 9th Feb 21, 8:57am
12
up

Banks will always look to maximise return on capital on behalf of shareholders, hence lending priorities will be determined by the asset class that demands the least capital and provides the most liquid collateral - there is a reason why the risk weights for sovereign bonds are zero.

Residential property standard risk weights can be reduced by implementing 'the internal models based approach'. ANZ has reported a figure as low as 27%.

Banks have migrated away from lending to productive business enterprises because the risk weights can be as high as 150%. Thus around 60% of NZ bank lending is dedicated to residential property mortgages held by one third of already wealthy households.

The number of households eligible to participate will inevitably diminish as the value of bank lending to this sector ratchets upward.

Bank lending to housing rose from $50,788 million (48.36% of total lending) as of Jun 1998 to $292,645 million (59.71% of total lending) as of November 2020 - source.

The point is bank depositors are most exposed to the instability of a real estate bubble fostered by excessive bank lending to this sector

Everyone's exposed to housing bubbles, whether you're an active participant or not.

What other country has LVR's on property?

Plenty of other countries have DTIs - perhaps we should have some of those, TK?

I'm totally opposed to those and LVR's, they just entrench to haves and have-nots.

For about the 1000th time, tax.

DTI's, appropriately set, would severely restrict investor demand relative to owner-occupiers since net rental income is typically sparse and would be discounted more heavily than salaries/wages. Net result, leveraged investors leave the market, house prices fall considerably to affordable levels and allow the have-nots to purchase. So yes, this requires a housing bust...but tax could certainly assist the process.

Given that a sizable portion of rental "investments" are negatively geared, this would be an excellent idea. It would increase stability (negatively geared properties would be the "first to go" in a downturn. It would also help redress the imbalance between owner occupiers (no existing equity) vs investors.

So all up a great idea, that will almost certainly be ignored.

They are negatively geared presumably due to interest costs. Surely those are not taken into account when determining DTI.

Why not? The numbers are already available from tax returns, if you claim rental income you likely claim various expenses against it. Simply use the same numbers in the DTI assessment if you want to claim your rental income.

DTI is calculated by reference to gross income. Using net income while also factoring in the full debt the gives rise to a negative amount in the net income calculation would be inconsistent.

DTIs are the answer.

It sets the basic human need of housing to wages.

start at 6.5 or 7 and reduce it by .1 or .2 per year till you hit the level that gives the most of society equal opportunity to live a rewarding life.

speculation is the cancer of the world right now and you see it not only in housing but stocks and cryptos. Sooner or later the time comes when it all falls down.

DTIs give you stability and equality

It's good that they finally decided to join the party. A party that already started a few months back that is....

In a stable market, a 20% deposit is all that is required, mainly to make sure that the buyer has some skin in the game because the property price is not going to rise (or fall) by much more than the rate of inflation. This stops the purchaser from 'walking' away from any settlement, plus gives the bank a safety margin to know that after legal and sales costs in the event of a default, they are covered.

And of course, because median multiple is approx. 3x income, a NZ size deposit equates to a 40 to 60% deposit in these jurisdictions.

In an unstable market like NZ, low deposit requirements reflect that everyone (especially the banks) are expecting rapid continuing price inflation, and conversely high deposit requirements, the possibility of a price correction that would leave the banks exposed, especially if it means the value of the property goes into negative equity.

This is more than just about slowing demand because it only takes away the means for some, but the thought process of wanting to do it is still there.

The fundamentals of an unstable market are still there.

I read this quote. "Bascand said while the limits would return at that level on March 1, from May, investors would require a 40 per cent deposit or equity."
Why are so many people leaving off the last two words of the announcement?

Because the equity has to come from somewhere if it is not already available in cash. And that will require security to be taken on another asset which will then have to itself meet the new LVR requirements. The new requirements will effectively prevent most investors who currently have less than 40% equity across their portfolio from taking on new purchases. The RB will be very conscious that having created the current mess they don't want to suddenly burst the bubble. That would be a bigger disaster than what we currently have.
KeithW

Burst it and rebuild from the ashes....

Lance the pus filled boil.

If you've made 20% value increase on your family home this year, you are probably already pretty close to achieving a 40% deposit on a smaller cheaper rental property. 40%LVRs may curb already highly leveraged property investors but for many this won't cause much of a problem. Because of such sharp recent increases I'm not so sure we will see significant change. - I suppose that is by design and the point you make. Perhaps the main impact, if any will be that it temporarily reduces fomo as people expect to see a cooling of the market.

So, eliminate the ability to use capital appreciation from existing property(s) then.
If you want to buy a 'cheaper' renter for $500k, then you have to come up with $200,000 of your own cash, not some mythical value of your existing holdings.
Part of the RBNZ Financial Stability worry is just that - the whole property market is dependent on past revaluation 'gains', and if those slip, the lot could fail.
Much better to start to de-risk the market by getting outside equity (personal cash) into the market than just ramping it up with 'profits' from within.
(Yes, you can take out a second mortgage etc. but the cost of that will likely be a turn-off for many)

Yes the strategy is to protect the banks, the fact the purchaser might do all their real equity is their concern, not the banks.

The fact that the banks require more real equity above 20% is a red flag that they see more downside than upside.

You own a home you live in with a market value of $1m and a mortgage of $500k. As the LVR for owner occupied are 20% there is $300k extra equity that can be used to buy a rental up to 40% LVR (i.e. $750k max).

Your proposal wouldn't let the person access their equity but you appear to have no problem with the person selling their home, receiving $500k cash, using $200k on a deposit on a new $1m home and $300k on a deposit on a $750k rental.

Same outcome except it is a pain in the butt and leakage to lawyers and real estate agents for transaction costs. Such an approach favours cashed up buyers and provides zero financial stability.

All this talk about LVRs is really about slowing house price growth rather than concerns over financial stability.

"you appear to have no problem with the person selling their home, receiving $500k cash, using $200k on a deposit on a new $1m home and $300k on a deposit on a $750k rental."

That's right. No problem at all. Because (1) It releases the original home back onto the secondary market. It's part of the market movement that's needed for price discovery (plus - what's the friction cost? RE Fees, Lawyers, Moving Company etc. $50K?) and (2) it 'levels the playing field' for FHBers. They HAVE to come up with cash. They don't have equity to use or leverage.
The whole problem is - debt, and access to it.
(You'll have read my past opinion. LVR for anything but the 'family home' should be 0%. So 40% is not high enough, as your example well shows)
One way or another that has to change.

bw, I agree with you that more needs to be done and there is no doubt that the NZ housing market is a ponzi scheme, although I'm not sure your suggestion is a particularly efficient one. It would be better to find a way to hold house prices constant in real terms so that the accumulation of multiple properties is less easy or desirable. Obviously there are many levers you could pull in order to effect this.

My comments were more in relation to why the reserve bank are doing what they're doing and what to expect as a consequence than what I'd like to see in an ideal world. I would like to see a big drop in house prices too but I can't see it being made to happen deliberately.

Holding any market constant, no matter what it is, is virtually impossible. There are whole industries dedicated to finding a way around the regulations, no matter what they are. I know. That's what I did for a living! So 'holding real prices constant' is a non-starter.
The one abiding factor that knits all of us with concern, who post on this site, is 'Access to Debt'. It's not The Cost (the interest rate) that really matters (the market was similarly exuberant at 12% mortgage rates 15 years ago) but the fact that housing is by far and away the most attractive commodity our lenders have to use as collateral for loans. Take that away and the market will adjust (and so will the lenders! They make their money out of lending, and if it isn't against housing it will be against something else. Dare I say it, productive business enterprises?)
Until that is addressed we will continue down the road to even more national hardship.

Germany held house prices constant for some time. The only thing missing in NZ is intent.

http://morganfoundation.org.nz/german-house-prices-flat/

The word you are looking for is 'stable.' There are plenty of products that have stable prices, cars for one.

And there are plenty of stable housing markets, with the prerequisite being, supply can equal demand in developer real-time due to the fact there are few restrictions to supply.

As far as direct regulation goes DTI's are the only thing that really makes sense but it seems too late now - the RBNZ wasn't initially interested in them when the initial LVR restrictions were proposed and then only later pushed for it (and the government of the day said no). Alternatively the RBNZ could impose a higher capital charge on residential/investor lending. The unease I have with all this is that the banks themselves should be looking after their credit risk, not blindly following central bank diktats. Clearly the management of banks are so short term focussed (market share for bonuses) they're happy to let the central bank tell them collectively what to do.

LVR for owner-occupier reinstated. I told you so again!

FHBs who are holding on to pliable deposits should absolutely BUY NOW or be extirpated from the market comes March. The government now gives you exactly 19 days to do so before the LVR close the door on you. Kāinga Ora’s First Home Loans won't open the door for you either- the average FHB will either fail the income test, the house price cap or both, so that shouldn't even be considered as a viable path.

For investors who had benefited from the crisis and intend to continue expanding their portfolios, a shift in the paradigm within existing strategies are required.

Investors should now focus on acquiring dilapidated properties for renovation, remediation and rebuilds. This includes properties that require upgrading to rental legislation. As loan raised to do so are LVR exempt, you need reliable contractors that would work with you to successfully implement this strategy.

For investors with restricted fund raising capacity, one viable route is to approach tier 2 lenders. The mortgage interest may be slightly higher but they are not encumbered by RBNZ's LVR requirements. To further enhance your buying power in the market, some lenders allows you to collateralise the future cash flow from your current rental income as part of the overall fund disburse calculation.

Be creative- it pays not to be dull.

How many investors will be shut out now? How many fhbs will need to save a bit longer to get to 20%? When will the effects of lower immigration take hold? When will supply catch up? When will all the new tradies finish their training? I think prices will have to fall and it could be 20% over the next year!

If you have a strong conviction that the housing market will crash, you should put the money where your mouth is- by shorting the entire NZ housing market. Anything else is a bystander comment.

Talk is cheap when you have no skin in the game.

If prices fall they'll simply adjust accordingly for desired result. Its all rigged

Yep they will cut the ocr to deeply negative etc to save the market

The housing mess in NZ will not be addressed in any meaningful way by any of the current political parties capable of forming a Govt in the short to medium term. The problem is now so extreme the political cost of implementing the radical reforms necessary is simply now too high, they will tinker. The most likely scenario is an external financial shock i.e., a major sustained global equity correction on such scale the markets lose confidence in the central bank’s ability to reverse the downturn. Widespread serious money loses in both the NZ housing market and equity markets need to occur before there is going to be any sustained behavioural and the required policy changes

Like your perspective Colin. I think what you said about confidence in the central bank as being key is important. ATM, the majority have the utmost faith. And why not? They can produce money like a genie with a lamp.

Yip, everyone knows where money comes from...and now the genie is out of the bottle, they'll have a hell of a time putting it back. That's why folks a cashing up on real assets. It's either crash and burn or inflate away the debt. Again, we all know where to point the finger. "End the Fed".

Yip, everyone knows where money comes from.

I disagree. They 'kind of' know. But not really. I think you'll find that people still believe that the banks are sitting on far more reserves than they actually are.

This rings very true. Both major parties have shown an aversion to actually addressing the causes, or impacts, of our housing ponzi scheme, simply because they want the economy to keep "growing", which is easy to do when private debt keeps boosting asset prices.

People claim its now "too big to fail" .... its "too big for the government to let it fail", but fail it will. Why? because the inescapable laws of mathematics. They may prop it up for another year, or 5 years, but it will fail and the longer it goes the worse the fallout will be.

At this rate it will almost certainly be an external event that forces the correction on us, so we will have zero control on how far or badly it spirals out of control and causes harm across the whole of society. We could be proactively managing this and gradually attempt to deflate the bubble, but instead its more politically expedient to put head in the sand and keep things going for your elected term, than it is to have the courage and conviction to really address the issue.

Its sad to watch the courage and foresight shown by the government in quickly and effectively tackling Covid (because the costs could be offset into the future, but the benefits could be reaped within their term in office). And then compare it to the weak and woefully ineffective response to the housing crisis (as the benefits would be long term, but the costs would be incurred during their time in office).

Pretty clear then, where the extra demand has come from since May 2020, and its NOT FHB or OO
To him that hath....

Too late, too slow RBNZ. Wake up. The frenzy was obvious last November.

Come on Jacinda this is all you need to do, its so simple and it is so fair.

Property investor A
Owns one property with a value of 1 million and it is fully paid for.
HE wants to buy a second property for 1million and has 400k in savings
He is preparedto put in 400k(40%) and the bank will lend him 600k
No income tax to be paid because he has stumped up 40%

Property investor B has a property worth 1 million and it is fully paid for
He wants to by a property for 600k but has no cash savings. The bank loans him all 600k. And the 40%(240k) deposit that has been released from the existing property is added to existing income and taxed.

The property investor effectively pays tax on money he is loaning, just like the FHB pays tax on his income. The Property investor is also paying interest on the loan.

Now if anyone is serious about sorting out the mess that is nz property, this is one way to do it. The market will come down... but it has to,to solve the problem

Now you have a tool that you can flex through the tax rate that you leverage on deposit loans. Raise it higher at first and lower it later when you are seeing the slow gains everyone desires.

I continue to be amazed at how inept this central bank is. The major retail banks are already implementing LVR restrictions at 40% ingoing equity, this announcement is completely redundant. All this tinkering on the periphery of the issue frustrates me
immensely, just start raising rates to pressure investor cashflow and watch the supply free up.

The major retail banks would not have implemented a 40% LVR or even 30% LVR if it were not that the RB signalled their own thoughts well ahead. At that point it made sense for the retail banks to position themselves for the new conditions.

Does it really matter anymore?
House prices are so far beyond the average income earner, and have been for years. Even if the market crashed by 30% prices would still be unaffordable.
It's time to give up on the traditional notion of a 'kiwi home owning democracy'. Instead, focus on building much more social housing and enabling more private rental housing. Increasing LVRs could ironically backfire in terms of the latter.

Yes I agreed, the sad thing is NZ and Australian governments won’t let it naturally correct. Gone are the days of drops in asset prices. Too big to fail comes to mind now.

If it does, it will be private institutional landlords, not Mum and Dad type amateurs.

It's going to be interesting tracking availability of Auckland CBD rental properties over the coming month or two, as international students depart and few enter.
1380 on Trademe tonight, I will keep track

Ardern has said this evening that she wants to 'tilt the playing field' towards first home buyers. What does that mean?
I suspect they will increase income caps and price points for the homestart scheme.

Haa that is the first, RBNZ only following the OZ bank cartel.. so if RBNZ clearly already received vasectomy. Then most likely the negative OCR is off table, inflations up? interest up? - here's the second event, the cartel increasing the interest.. then the OCR will follow suit? - who's leading who now? - ans: 'vested interest of the market'

This is only half the story. Investors can still purchase a new property with a <20% deposit due to the new build exemption rule.

This LVR stuff is a total nonsense. It won’t stop investors buying unless they are stupid or naive.
There are a heap of non bank lenders in the market over which Robertson or the RB have no control. Some of the many that spring to mind are Midlands Mortgages, Squirrel Mortgages, Lornies, and one if the best in the business, First Mortgage Trust.
They have billions at their disposal and will happily lend on peanuts deposits. Their interest rates may be three times higher than the bank but who cares if property prices result in big capital gains. Besides, the tenants will pay in the end, through rent hikes one way or the other. All the mortgage brokers know who they are, and at last count there were scores of such lenders bursting with money and eager to lend.
I have used all of them all at one time or the other, so investors have no fear. If you can put a spoon in your mouth, or breathe a fog on a mirror, keep on speculating to your hearts content.

Ah, reminiscing, Strategic Finance, the good ol' days return.

Last time for similar reason he put that 40% in 2013, then C19, for odd reasons he straight away remove it. When the train is run away, even the Banks 'suddenly becoming prudent', he's aim is correct though to push rocket to the apex momentum, but sadly he's under the pressure now to put it back, soon? Mr Orr & team, also will follow the OCR swing up movement, as per banks moves interest up in 2022. Let's hope that despite all this hawkish calls by banks to put it up, Mr Orr & team will still put it to negative zone. NZ should learn how to cope with pain, who knows? - the expected natural 'austerity steps' will door knock soon.

More tinkering won't take the steam out of the ferocity of the housing market caused by the $57b tipped into the economy.
It'll just turn the element down to a long slow cook temperature, until the next capitale injection.

Lots of people want to rent for many different reasons. Now we have one more reason why renting will get so much harder and there will be less landlords who will be a lot harder on renting. With LVR’s and the medieval new rental rules why would you rent out a house at all. Should be supporting landlord investors not whipping them.