Reserve Bank eyes removal of loan-to-value ratio mortgage restrictions in response to COVID-19 economic downturn for at least a year

Wow that is crazy.

LVRs were supposed to protect banks i.e. if there was a big drop in prices then they wouldn't have bad debt (customers owing more than the house is worth). I don't understand why LVRs should be removed now? It seems to keep house prices up.

" After that period, we will review whether to reinstate LVR restrictions. This provides banks and customers certainty"
Cool! But which customers is it giving certainty to?
Hop into the market today at 100% LVR and then try to sell to The Next Buyer down the track at 80% LVR!
What could possibly go wrong.....(Another idea to add to the long list of "They have no idea what they are doing!")

Madness. The pumping must continue, no matter the cost.

The house is on fire. RBNZ proposes dumping a truckload of oil on it.

Now even RBNZ is planing to remove loan to mortage restriction and this is in situationwhen many are losing their jobs and business.

Attitute should be like RBNZ as who cares as long the bubble created is sustained (though not possible this time by throwing any amount of easy and cheap money) and banks should be more carefull but they too may go overboard as are playing with deposit and money of average kiwi in case of going burst.

Question to be asked is this the time to be more realxed or vigilant to give easy loan and create more risk.

Here we go.
Everything will be done to stop the crash of the housing ponzi.
That's why I think it will 'only' fall by about 10%, overall (some places more, some places less).

"The LVR policy is aimed at reducing the risks to financial stability from a severe correction in
house prices. " RBNZ 21/04/2020
Clearly a severe correction is the RBNZ base case.

Careful we don't just feed yet another investor feeding frenzy again and push the lower quartile property prices higher increasing un-affordability and even higher debt levels on balance sheets

Interesting to see where this goes... I think a simpler solution would be to offer targeted LVR exemptions for those who need it if house prices decline below owner equity levels

RBNZ can remove the LVRs if it wishes - however will banks be prepared to lend on 5% or even 10% equity with high levels of uncertainty in both the housing market and employment.

Note the consultation. "Stakeholders". Well I'm a stakeholder as I'm a tax payer. I want my voice known.

THIS PROPOSAL ALLOWS BANKS TO SELF GOVERN LENDING. THE PROPOSAL IS CRIMINALLY NEGLIGENT.

NO OTHER DEVELOPED NATION ON EARTH HAS THIS REGIME AND FOR GOOD REASON, BANKS BLOW UP WHEN CREDIT EVENTS OCCUR.

DONT PUT THE TAX PAYER AT RISK TO PROP UP THE HOUSING MARKET.

Just suck in the first home buyers, this is corrupt. Do they give a us a guaranteed low interest rate too?

And why would a bank give anyone a risky loan when prices are falling and dole queues are climbing?

Is this like relaxing the Building Code during an Earthquake?

Hahaha......and they see this as a possible way to restore confidence. Talk about grasping at straws.... clearly the banks solvency is even worse than we realise.

I think it would be worth the entertainment just to see if Banks lend >80% in this market.

WTF!! You could not make this shite up

Wow this makes me so angry, there is no price discovery any longer its all a big joke

This will enable property investors to easily offload their properties. Maybe they should sell their properties to their tenants.

Needs to be replaced with DTI restrictions. LVR was only ever going to keep feeding the ponzi.

Mind-Boggling Stupidity on behalf of the RBNZ

You may not have much capital to speak of, and your jobs may now be tenuous, but by all means, borrow away. It’s probably fine though as banks on their own will finally be more reluctant to lend to people with low deposits now.

If there was ever a sign that the party is over, this is it.

Are they basically saying, FHB please come and rescue us, but be willing to get completely wiped out in the process?

Is RBNZ a friend or foe ?

Or

Foe in disguise of a friend - more dangerous

WHO WILL BE RESPONSIBLE FOR DEPOSIT HOLDERS /AVERAGE KIWI P, IF BANK DEFAULTS.

Can Governor assure that no such thing will happen as banks will be forced to take higher risk due to competition.

He may resign in such a scenarion but that will not help many who lose their deposit in bank or may be everyone should withdraw cash from their bank in hundreds of thousand dollar and invest in safe deposit locker.

Any advise from experts on interest.co.nz or is this fear unjust.

It is clear that the RBNZ is now assuming what many housing speculators still refuse to admit, in their delusional thinking: the simple, unavoidable fact that house prices will decrease significantly in the future (I guess at least 20% if not more), moving a few owners and speculators near or at a negative equity position. This temporary removal of LVR will allow banks to better support home owners in such a position. It is clear though that housing speculators will be monumentally shafted - I can't see banks supporting them any longer, LVR or not.
The RBNZ should have made this clear, and removed the LVR restrictions only on first homes, though. Supporting housing speculators is the last thing the NZ economy needs right now.
In any case, the removal of LVR should only be a very temporary measure: having strong LVR restrictions in the past few years, and strong capital levels, is what will allow banks to survive this impending real estate carnage. We do not want banks to come out of this in a shaky financial position, just because we were forced to support the fools preaching the self-serving, Ponzian, moronic myth of ever-increasing house prices. They have made their bed, and now they should be left to sleep in it.

(My jaw hitting the floor) I can't tell who is more drunk; the Reserve Bank, retail banks, the real estate industry or me for believing this conduct has been well intentioned all these years! Has the RBNZ shared their modelling on house price values? Surely that needs to accompany these types of announcements. In the absence of that this decision is absolute madness.

Just yesterday a couple of people asked me where I thought house prices were heading…
I answered there was too much uncertainly for me to make a prediction but that basically it was a tug-o-war between the economy tanking, businesses closing down and people losing their jobs vs more and more cheap money being thrown at the problem.
Note, I'm not casting a judgement wether this is right or wrong, good or bad, I'm simply stating what is

Will be interesting to hear of Mr Reddell's take on this.

They should be getting sacked and charged for this.

I don't know about anyone else, but I'm rapidly losing faith in our financial system and that worries me very much because of what it means.

Smoke and mirrors! The RBNZ's own data showed the limits were never even being close to maxed. The servicing of the loans is key... which, with COVID19 and responsible lending codes, is still going to be the main inhibitor.

I think I was reading the quarterly notes from US bank Morgan Stanley who indicated that while previously they required 5% collateral they now required 20% as their own guideline. What this indicates to me is that banks themselves will not take the risk.

I feel like this isn’t really going to affect how retail banks lend.

I wish the Reserve Bank weren't independent, so we could vote this current governorship out.

WHAT ON EARTH????

It seems a reckless decision at first but I'm not sure it is.
I doubt that the banks will start lending at over 80% LVR in the current environment because it's simply too risky.
So why get rid of LVR's?
Possibly to avoid weak borrowers (many recent FHB's) to be pushed over the 80% threshold if house values fall by more than 10% and avoid them an uncomfortable phone call from the bank? Surely, that's a good outcome

This will be about trying to prevent a property market crash. Suddenly the inflated market matters a lot.

WOW finally Labour realises that crashing house prices would cause untold damage -- to those FHB's who bought in the last few years and the huge number of home owners with limited equity - but to keep them propped up they are going to create a whole new group of over leveraged borrowers in a crazy and almost certainly falling market - do they not get that larger property portfolios are much better leveraged and will simply ride out this storm and start picking up even more properties as the chaos unfolds

Ludicrousness of the highest degree

when a Ponzi looks like collapsing, the only solution is MORE players

This is bad, while OCR is 0.25% and now there is no LVR restrictions, it's like as long as we can live for now, we can absolutely throw tomorrow away. Feel sorry for the people who've just bought houses.

Great news, nothing will change as always.
The party is on, all the free drinks are on the table. Some will have a great time, some won’t get much to drink and some will end up with bad hangover.

I smell the desperation, while I sense the opportunity

WTF let’s throw some petrol on the fire!

Great news, but banks are going to be quite stingy with new lending anyway.

Well its a real kick in the guts for a wannabe fhb that suddenly has job security issues if the housing market gets further away from them because of this.

Anyone else get a 6 page letter from John McFarlane (Westpac) recently - basically saying to shareholders that we're in trouble but will do our best even though were all being overpaid so we need more overpaid committees/directors to make change?

As I have always said now for years ..... the PPP - "Property Ponzi Party" ...gotta keep it going at ALL COSTS ! Please note ....ALL costs ....

RBNZ will next allow approval of NINGA loans and will buy them off the banks. Got to keep the property ponzi going.

Manna from Heaven for Many.

"The Reserve Bank is giving banks seven days notice that it plans to remove loan-to-value ratio (LVR) restrictions on their residential mortgage lending for at least a year."

unclear if this is the
1) change in LVR
2) change in speed limit of LVR's

Excerpts from RBNZ - https://www.rbnz.govt.nz/faqs/loan-to-value-ratio-restrictions-faqs

A) What are LVR restrictions?
A loan-to-value ratio (LVR) is a measure of how much a bank lends against mortgaged property, compared to the value of that property. Borrowers with LVRs of more than 80 percent (less than 20 percent deposit) are often stretching their financial resources. They are more vulnerable to an economic or financial shock, such as a recession or an increase in interest rates. When we talk about high-LVR (low-deposit) lending, we are generally referring to someone with less than a 20 percent deposit – or an LVR ratio of greater than 80 percent. For investors purchasing property secured with a mortgage, deposits of less than 30 percent (LVR of greater than 70 percent) are considered high-LVR.

These restrictions provide a buffer in the face of a sharp housing downturn, which would particularly affect highly-indebted home owners and investors.

B) What are the current LVR restrictions?
There are two nationwide speed limits for owner occupier and investor lending. Banks are permitted to make no more than 20 percent of their residential mortgage lending to high-LVR (less than 20 percent deposit) borrowers who are owner occupiers, and no more than 5 percent of residential mortgage lending to high-LVR (less than 30 percent deposit) borrowers who are investors.

C) Why has the Reserve Bank imposed LVR restrictions?
The Reserve Bank introduced LVRs in October 2013 in response to rapid house price growth, especially in Auckland, accompanied by a sharp increase in the use of low-deposit loans. The policy helped to strengthen bank balance sheets and had an immediate dampening effect on housing market activity and house price inflation. From late 2014, upward pressure on housing prices re-emerged, predominantly in Auckland, posing renewed risks to financial stability. Investor lending had been increasing rapidly and was a significant contributing factor to the renewed housing market strength.

A sharp correction in house prices is a key risk to the financial system. A severe fall in house prices could have major implications for the functioning of the banking system and cause long-lasting damage to households and the broader economy. Housing lending makes up about half of bank lending in New Zealand, and a home is usually the single largest asset that a family owns. There has also been a rising incidence of small investors (that are heavily reliant on credit) in the housing market. These factors mean that any instability in the housing market could undermine the stability of the wider banking system and economy.

haw haw ......

Who could have believed oil negative $37usd p/barrel? Now 20% deposit to 0%? Look at council rates, all that money local councils borrowed, and for what? Look at insurance costs. Who would/could buy. I imagine the renters can now hold the balance of power, just to keep average annual costs covered, owners will be desperate to have a tenant. Rates and insurance have been quietly creeping up, and with the euphoria of ever increasing capital gains, no one noticed. The costs of owning a house are not in the owners control, so who would want to buy? Negative rent? Doesn't seem possible,being paid to live in a house? Let's see.

Reserve bank are expecting house prices to tank. This decision is proof that their modelling has scared them. Looks like panic, smells like panic, then it is ....

I think this shows that everyone is scared witless of what is going to come. I agree with people who say this is not intended to encourage new lending (as who on earth will want to borrow and who on earth will lend, regardless of "restrictions" those are needed when there is crazy demand for credit), but to avoid creating a huge swathe of risky mortgages (where the value of collateral is not enough to cover the debt) thus giving the marginal debtors a little bit more space. Not sure if it is going to be effective, but i can see why the RBNZ is doing it.

Could be far less sinister: giving FHBs chance to get one of the upcoming bargains. 20% of a property that’s fallen by 20% to $700k is still $140k. Interest on a $650k mortgage at 3.5% only @$440 a week, cheaper than rent even after rates etc, much cheaper when you take into account the inevitable capital gain.

This move is purely to allow banks to broaden their high income low deposit loans. Banks will not increase risks at this time, only lower them. But it expands the potential base of clients in a diminished environment and will allow some high income earners the opportunity to buy in at a price point they are comfortable with.

I did lay out on this site, the past couple of months as what they need to do to prop up/keep on their home asset valuation, every little bit.. they'll follow it. All? just to maintain their Neoliberal grip manifested in F.I.RE economy.
Next? FHB lowering threshold, OCR down, they're frantically try to maintain this one economic single bar of GDP productivity, removed or lowered further the banks CAR.. RBNZ is try to jolt the zombie economy. In small NZ? this is largely Psychological.. what none of them have control off? - worldwide affairs. NZ duffrunt.

How many on this site get it almost 100% like moi? - OCR down by 75 basis, defer deposit guarantee, defer CAR & capitalisation percentage, suspend LVR, soon lowering FHB (they kind of a bit embarrass here).. as all those parameters directly to hold the F.I.RE economy. Only couple weeks back Orr's stated spend, spend..until this S**t..happens
https://www.scoop.co.nz/stories/HL1507/S00101/the-fire-economy-new-zeal…
https://www.youtube.com/watch?v=MGrBCtOt4Qs
Orr's vested interest on his RE valuations & the rest of ruling elites, economist - all there 'subconsciously' at play

This is probably more about making equity available to households with more recent mortgages (i.e. most likely larger balances, i.e.the most at risk of default), so that they will be able to draw on a LOC to help cushion interrupted household income if one partner is made redundant for example. They probably already bought close to the previous LVR limit. If you give people a bit of room to work themselves out of it rather than force a sale for short term delinquency issues, you're probably doing everyone a favour.

Next comes OBR and a grab for savers deposits to bail out those who borrowed like drunken sailors. Aspiring fhb's should be very afraid. All done under the cover of the old persons virus.

Yikes, economic armageddon is on the horizon but hey FHB, why don’t you mortgage yourself up to the neck. This is insanity!

This is the simplest for NZ public to understand: South Island being struck again by major quakes, water, food, drinking waters, milk, sanitary products, shelters, medication are all becoming essentials for peoples to survive.
But alas, all of their respective local councils, banded together... open up shop of buying & selling gold bar.
Folks, even Prof. Jane Kelsey stating some of those Neoliberal actors are easily identified to prop this F.I.RE economy. To undo their 'intertwined' legally binded scheme by either red or blue team? is difficult. BUT do ask me on how to undo them 'legally' - you need to pay me for my answer.. ha ha ha.

FFS..... and that middle F is not a word in my everyday vocabulary!

With such a continual gap between haves and have nots, the country has never been more divided. It's not going to be possible to roll out same solution, as back in 2008. Too much of NZ is impoverished. When it comes to the virus, we are all in it together, when it comes to national finances, those that hold high levels of debt are on their own. From 2008 onwards, a large number lost the lot, and in 2020, they're the ones with nothing to lose. It's like a game of othello, the pieces just change colour, just like that. Those in lofty positions are going to find it's a long, and painful, way down.

The central banks are fighting deflation. This is because money (debt) is being destroyed. They need people to take out new loans in order for this ponzi scheme to carry on. It's a game of musical chairs. Now that the music has stopped; some are left standing up.

NZ. Make the rich richer and the poor slaves.

AO has just stumbled into GR on cuba street and they now both at the strippers dishing out the dollars...im off to buy a G string

I suppose they need to give leeway to banks to continue to prop up the residential construction side of the property market. With consents at all time highs and large developments coming to market, how else would the still employed (over the next 12 months) gain access if they have only had a small deposit? They will be the target of RE and Banks being 'encouraged' (many words could replace encouraged) to get on to the property ladder and take out a 90% - 100% loan.
Developers will be thrilled and relieved. So will councils!

Negative equity .......
https://www.google.co.nz/amp/s/amp.scmp.com/business/article/3080115/mo…

Lol. You didn't really think old man Orr was going to let the value of his multi-milllion property portfolio slide did you?

This is the guy who was busily stoking another property boom with his reckless OCR cuts just a few months ago. Blind stupidity and as crooked as they come.

Financial stability is not letting the debt peddlers pump prices to nose bleed levels in the first place. Not this ambulance at the bottom of the cliff desperation when the property ponzi implodes.

Internet rates are effectively zero. Printing money on unimaginable scale. No deposit insurance. LVR restrictions removed. No DTI. My savings in the bank are being taken for granted.

Thanks Adrian. You've finally motivated me to take whatever cash I have sitting in NZ banks and put it into PMGOLD. The writing is on the wall. Anybody with savings in a New Zealand bank is a sitting duck and is supporting the last gasps of the property ponzi.

RBNZ - Reckless Boomers of New Zealand

Anne Gibson, Tony Alexander, Ashley Church, Bindi Norwell and the rest of the property cockroaches are going to have a field day trying to lure the young and the gullible over the cliff edge with them.

Utter madness. There is no other explanation other than it is self interest. Those making the decisions are looking out for themselves and the value of their property, not applying the mandate they swore to uphold, which is the long term stability of the financial system. Or more importantly, the long term stability of the people they are supposed to represent.

The petro dollar. USD, global reserve currency. These have now become history. Global financial stability? What we are in now in is GFC 2. The gfc was never "solved", simply postponed, and made all the worse for it. There is a new world order underway, and nations are either going to be a part of it, or be enslaved by it. Like the "rich" masters, that are simply in debt. They are the new slaves. The real wealthy are less than 1% of the population, and they only ever look after themselves. Homelessness, mental health, suicide, poverty, who really cared about these things over the last decade? They wouldn't have continued to get worse if the powers that be didn't want them too. Same now, it's just more of the former "middle class " getting thrown under the wheel, and still, the powers that be will not care. Largely because they are worried, as they always are, that they may lose their own positions.

What's not happening? People buying houses. Who's not creating credit? The banks. Who's suffering? The banks. What are they doing about it? Jawboning the polies & their ilk to their advantage. This is rich & privileged looking after the rich & privileged. The same game as last time. Where's the new thinking? Bullied out of the room by the rich & privileged. Why? Because when you're the rich & privileged you don't ever want that game to change. Perhaps we (the little people) should create a 21st Century guillotine, then they might listen to us?

You are a brilliant communicator. People love you right now. But you also know if Auckland property prices are 20% or more down in the next few months. In September you are toast.

brilliant idea: encourage more negative equity at the v time when house prices are most likely to fall.

Why is all this defensive chicanery required for people to try to buy a house?
Because wages are too low and house valuations are too high.
We buy fewer houses than in 2003-4 (in 2019-20, over 12 months)
With around a million extra people and about 15% more stock, at lower interest rates.
Does this look like a healthy market to anyone in policy making?
Really, there is no policy, just more of same of what is not wanted and doesn't work

Where is tothepoint and THEMAN2 in all of this?? :D

Government needs to stop this insane idea of RBNZ's. People need less debt into the future, not more. Not only will our young adults will now be burdened with servicing a huge public debt but if LVRs are lifted, they'll be burdened with even more private debt. But perhaps government is happy not to intervene as it only seems to care about protecting the politically powerful baby-boomers' property investment values... but that's democracy and the it's the demographic that has the clout to get what they want e.g. Jacinda's "no CGT while I'm the leader..." promise.

My wife and I have secure jobs (permanent contracts for teacher/nurse) and currently have about 12% deposit. We have some credit card debt we are paying off currently (original plan was to look at getting a home next year).
This seems like good news to me. Wait 6 months or so and then jump into a property when they drop? With LVR removed the banks should be pretty happy with our deposit + stable income. I'm aware they will keep dropping but they will surely bounce back and this would be a long term live for us anyway.
Am I being naive? What am I missing here