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Banks to be allowed to do a bit more high LVR lending from June 1, RBNZ says

Banking / news
Banks to be allowed to do a bit more high LVR lending from June 1, RBNZ says
26th May 23, 9:22am by Gareth Vaughan

The Reserve Bank (RBNZ) has confirmed restrictions on banks' low equity mortgage lending will be loosened from June.

Restrictions on high loan-to-value ratio (LVR) residential mortgage lending set a ‘speed limit’ on how much new low-deposit lending banks can do.

From Thursday, June 1 banks will be allowed to do up to 15% of their home lending with LVRs above 80% for owner-occupiers, and 5% of lending for loans with LVRs above 65% for investors. 

Currently there's a 10% limit for loans with LVRs above 80% for owner-occupiers, and a 5% limit for loans with LVRs above 60% for investors.

The RBNZ announced the proposed change in late April. Unsurprisingly banks have embraced the loosening of lending restrictions following consultation.

“In making this decision it is important to reiterate our assessment that the risks to financial stability posed by high-LVR lending have reduced to a level where we believe the current restrictions may be unnecessarily reducing efficiency,” RBNZ Deputy Governor Christian Hawkesby says.

"The previous LVR settings were put in place November 2021 when risks were elevated. The restrictions built resilience in the financial system, which has been evident in the past year as house prices have fallen without widespread impacts to financial stability."

Both house sales volumes and prices are down significantly since November 2021. The Real Estate Institute of New Zealand (REINZ) House Price Index is down 17.6% since November 2021. At just 4262, April sales volumes were the lowest for an April month, excluding 2020, since the REINZ began reporting sales in their current format in 1992.

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39 Comments

by  Cur8or  |  26th May 23, 9:33am 1685050390

I suppose we'll never learn.

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by  bw  |  26th May 23, 10:16am 1685053009

I guess we all know now what "Stupidity, writ large!" looks like.

Can't they read their own words? "The restrictions built resilience... as house prices have fallen without widespread impacts to financial stability."

 

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by  fortunr  |  27th May 23, 10:44am 1685141048

This comment succinctly but effectively describes, in one short sentence, the RBNZ management under Orr.  

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by  HouseMouse  |  26th May 23, 9:33am 1685050434

All going to plan. Loosening things up a bit while the market is tanking, and ahead of the election.

And no more OCR rises!

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by  Zwifter  |  26th May 23, 10:07am 1685052473

No idea why anyone is surprised. If you learned anything from the start of Covid when house prices should have tanked 20% and didn't because of RBNZ intervention then you have not been paying attention. Its just more intervention now to keep the party going.

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by  HouseMouse  |  26th May 23, 1:19pm 1685063961

Mind you the support it provides will be limited.

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by  ChrisOfNoFame  |  26th May 23, 1:14pm 1685063659

Like I said some many week ago. 

Next question: When will the first cut in the OCR come?

I was saying "signaling" before the election and the cut before Christmas or just after. Now between March and June 24 to avoid another winter like the one we're going to have.

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by  yeahrightmate  |  26th May 23, 9:43am 1685050998

Be quick!

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by  Averageman  |  26th May 23, 10:11am 1685052705

And DTI arriving soon to limit the tax rinsing stupidity...

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by  buyandhodl  |  26th May 23, 11:50am 1685058602

Someone's simple and cynical aren't they?

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by  Averageman  |  26th May 23, 12:03pm 1685059399

That's a valueless statement without more context, aka why you think that.

My context Many posts on here and in other press highlight the moaning from spec land is about the incrreasing lack of tax deduction. Taking that noise at face value, its clearly important. DTI when implemented will have a massive effect, because, lets face it, its impossible for rents to increase by enough to support the amount of debt loaded up by speculators in their quest to eliminate tax.

I take it you are not a fan of DTI, feel free to explain...?

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by  Independent_Observer  |  26th May 23, 12:07pm 1685059677

Oddly I would find that it would be a simple and cynical person that would claim that somebody else is simple and cynical. 

It's a form of hypocrisy. 

 

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by  tomjones_04  |  26th May 23, 10:28am 1685053685

It's head scratching stuff. Such a confusing situation they have created. It does feel like they are making it up as they go along... without a solid end goal 

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by  Averageman  |  26th May 23, 10:40am 1685054448

Agreed. The left has definitely tightened the speculative angles. But its election year and you have to play both sides of the fence.

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by  Northlander09  |  26th May 23, 1:23pm 1685064211

Seems like they are trying to fix their mistakes on the sly, without having to admit how badly they messed everything up. Agree it is like they have no end goal, but then again if they did maybe that would cause too much market disruption as the cards on the table would all be flipped and the next moves would be too obvious (i.e. sell/buy/hold). 

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by  Taubin  |  26th May 23, 10:47am 1685054843

I for one, cannot see anything going wrong with this decision.

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by  IT GUY  |  26th May 23, 11:09am 1685056166

Its one thing to lower the LVR, its another thing for a bank to take that risk and a third thing for a person to want to take the debt on at current levels....

They are trying to make it easier to buy as BUGGER all people are interested in buying, you can smell the fear.... another 25% and those provisions go up from 800 mil to a couple of billion

 

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by  Independent_Observer  |  26th May 23, 11:42am 1685058160

If the inverstion in yield curves is correct, and we're heading into a recession, why would the government regulator for financial stability want to increase the amount of mortgage debt being issued relative to incomes?

It doesn't make any sense - it is all back to front logic. 

If a recession is inbound, you want to minimise the quantity of debt being issued relative to income in order to reduce the severity of the slow down in the economy (i.e. prevent people from defaulting on debt or getting into mortgage stress). 

Our regulators are living in lala land. 

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by  dbbr  |  26th May 23, 12:06pm 1685059602

Yeah pretty insane.

 

I actually think that they are panicking. That’s why it all seems so illogical. Look at what we have seen in the last few days:

  • softer ocr than expected, suggesting they are done or nearly done
  • “forecast” we will see smaller drop in housing than previously forecasted as we head into recession??
  • Reduce lvr restrictions today

Looks like we will be first to cut rates lol.

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by  Independent_Observer  |  26th May 23, 12:19pm 1685060359

Yes in a recession earnings drop so it is foolish to increase debt just prior to the anticipated event - unless you are a debt speculation junkie supporter which doesn't solve the issue/s we have - it only makes them worse.

Our problem - far too much residential property debt relative to our producitivty/incomes. Think it is 5x GDP which is insane. Why you would, as the financial regulator, want to take actions to increase or sustain that level of debt is completely beyond me. 

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by  OldSkoolEconomics  |  26th May 23, 12:24pm 1685060692

Someone is pulling the ripcord...  

The housing market is already dead and with a lot more people rolling over to very high mortgages over the next year (1/3 more) they need to try to engineer a slightly softer landing ...  

Trying to encourage people to buy houses while they still have 12 months+ to drop is probably not the ideal solution now tho - but they are probably trying to pacify their boss (chippy/nats took a pounding in the polls) and the banks (their future bosses if they keep them happy).

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by  Independent_Observer  |  26th May 23, 12:29pm 1685060988

"they need to try to engineer a slightly softer landing ... "

Which is what they did in 2020 - 2021! (removing LVRs, emergency rate cuts, allowing interest only loans) And now some of those buyers find themselves in negative equity, a large debt burden, and rising rates.

Madness - it is literally using new FHBs as cannon fodder for older rich people/property investors to protect their asset prices as opposed to just letting the market fall back to sustainable levels of debt relative to our productivity/incomes.

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by  OldSkoolEconomics  |  26th May 23, 3:03pm 1685070228

Nah. The current interest rate settings añd stress tests will preclude 90% of potential FHB from even thinking about buying.. and apparently the rates are high for at least a year. In that time prices will fall. At the end of that period even we will think rbnz needs to stok the dead as housing market.

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by  Nellbell  |  26th May 23, 2:01pm 1685066474

Hey, I thought the Reserve Bank was completely independent of government ??

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by  OldSkoolEconomics  |  26th May 23, 3:01pm 1685070098

It is completely indepenent and orrs was selected by and his very lucrative contract renewd by labour.. regardless the nats disagreement.

Independant as.

Ps perhaps rbnz boss selection, package and appointment should be made by an independant body

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by  ChrisOfNoFame  |  26th May 23, 1:20pm 1685064053

The logic makes perfect sense.

It allows many 'mum & dad' landlords to dump their old, tired, in-need-of-modernisation rentals on a FHB before the they face a mortgagee sale or a please explain from the IRD.

[Too harsh?]

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by  fortunr  |  27th May 23, 10:55am 1685141744

I strongly agree, it does not make sense - unless you look at it from a political standpoint. They are trying to lend some support to the current Government. Let's not forget that Orr was recently re-appointed by Labour.  

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by  dbbr  |  26th May 23, 11:34am 1685057676

Reads like a black comedy.

Quote of the day: “we believe the current restrictions may be unnecessarily reducing efficiency”

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by  ChrisOfNoFame  |  26th May 23, 1:25pm 1685064339

Because the Australian banks need more efficiency to fleece silly Kiwis? ... They've been massively efficient to date. Surely they don't need more help?

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by  Smudge02  |  26th May 23, 11:42am 1685058147

You cannot tell me some of these recent decisions by the RBNZ are not influenced by the fact that it is an election year. 

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by  Nellbell  |  26th May 23, 2:05pm 1685066708

But isn’t the Reserve Bank completely independent of government?

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by  HouseMouse  |  26th May 23, 2:44pm 1685069053

Only in name is it ‘independent’.

Just like government agencies should be providing objective ‘free and frank’ advice to ministers. Of course they don’t. They provide what the minister wants to hear. All carefully cultivated by the senior bureaucrats.

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by  Nellbell  |  26th May 23, 3:34pm 1685072052

Just like “Yes Minister” then?

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by  HouseMouse  |  26th May 23, 7:50pm 1685087442

Yep!

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by  nguturoa  |  26th May 23, 11:44am 1685058293

Yay go for it mate. Drown them in the heap of that mortgage and make them the slaves of the banks. 

That's a good move to make those rich handlers happy. Money makes the world go around and those rich ones need it more than the poor do in your dictionary 

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by  phalanax  |  26th May 23, 12:29pm 1685060964

It feels like I missed an episode of "Gliding On" (1981)  . Did Jim make the announcement?...lol

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by  Jono33  |  26th May 23, 12:37pm 1685061429

All looks pretty good to me. End of this cycle is near, we are around the long term average. There will be some nice bargains over the next 12 months but remember, as in the past, the recovery will be mixed. I will look for bare land, preferably titled sections in areas with potential. Reminds me of 2013 so you will need to be patient. Happy investing.

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by  Pathos  |  26th May 23, 12:47pm 1685062075

Banks are "fishing for the greater fool".

As the last governor of the RBNZ declared in a moment of frankness,

"The stability of the financial system depends on those willing to step up and borrow".

Banks happily throw borrowers under the bus for their own profit and survival of the system, the lifeblood of which is the continuous creation of money.

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by  Hastings  |  26th May 23, 12:54pm 1685062485

And look at the machinations in Oz to keep the Ponzi alive. Take a few positive sale indications from the blue chip suburbs of Sydney then desperately parlay it into FOMO on the hellboxes of the outer west...Doomside, Bonnyrigged etc. The media over there is beyond disgraceful along with their slimy lizard skinned agents. Perhaps we're a little brighter and won't dive for the sinkhole so much. Fingers crossed.

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