Kiwibank economists say latest house sales figures show a 'well behaved' market and so there is 'every possibility' of the RBNZ further relaxing lending limits

Kiwibank economists say the latest house sales figures show a "well behaved" housing market and there is now "every possibility" that the Reserve Bank sees current conditions as allowing a loosening of bank lending limits.

The RBNZ will be considering whether to relax limits on high loan to value ratio (LVR) lending in its next Financial Stability Report that is due to be released on November 28.

In November 2017 the RBNZ did announce a loosening of the LVR rules and these were implemented at the start of this year. At the moment banks may advance no more than 15% of new lending on loans in excess of 80% of the value of the house to owner-occupier borrowers. Housing investors have to find a deposit of 35% to be considered for a loan.

LVR restrictions were first introduced in 2013 with the more stringent investor-related rules being added in 2016.

Kiwibank senior economist Jeremy Couchman said the current developments in the housing market are "consistent with our view that the housing market has entered a period of consolidation".

He said national house price appreciation "is expected to move broadly sideways for the next year or so".

"The housing market has been contained, because of Government policy uncertainty and tough restrictions on investor-related lending.

"...But the market is well supported too and far from falling off a cliff. We have a massive shortage of housing, record low mortgage rates, and an unemployment rate at 3.9%.

"For the RBNZ, the debate is whether current housing market conditions are right for further loosening of Loan-to-Value Ratio (LVR) restrictions. We think they are."

In a speech in Sydney on Tuesday RBNZ Deputy Governor and Head of Financial Stability Geoff Bascand referred to the debate going on behind the scenes at the Bank in the lead-up to the FSR being released on November 28.

He noted that the LVR measures had been "an important mitigant" to the significant increase in financial system risks associated with mortgage loans over the past five years. 

"The question we are assessing is whether the same restrictions are needed in the current environment where debt levels remain high but are not deteriorating, now that bank lending standards have tightened significantly and rapid growth in credit and house prices have stabilised. If these conditions continue, we expect to gradually ease the policy in coming years."

Couchman said the Wednesday REINZ housing market report showed a rebound in sales, "but the housing market remains well behaved".

"There is every possibility that the RBNZ sees current conditions as congenial to looser LVRs."

He said in addition that loosening the LVRs would work with, not act against, the Bank’s monetary policy objective.

"We saw in last week’s Monetary Policy Statement (MPS) the RBNZ remains sensitive to economic risks. Even despite generally stronger local economic data the Bank kept the outlook for the [Official Cash Rate] unchanged. The Bank is determined to push inflation back up to the 2% target midpoint and keep it there."

Couchman's picking that if the RBNZ does decide to loosen LVRs this month this might include shaving the investor LVR by 5% to allow lending to those with at least a 30% deposit (down from 35% currently). For owner-occupied borrowers, the speed limit on banks’ lending to those with less than a 20% deposit could be raised slightly to 20% of new bank lending from 15% at present.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a 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.


Now is not a good time to buy.

I had to smile when I saw this clip. My favourite part is 5 min into video.


Oh dear, house prices have stopped going up. Panic, ditch the bank regulations, man the pumps and bring in more people to push the prices up. Not.

Our commercial banks are like local drug dealers; they can't live with a well-behaved market. They do well when households make reckless buying decisions over-leveraging themselves.
I am not sure whether in this scenario, are our central banks the drug kingpin or the anti-narcotics police. I believe they pretend to be the latter but in the long run play more of the former role.

Isn't it odd how our regulators who are supposed to create stability, themselves cause instability?

Perhaps without regulation, we would truly have a free market and potentially more stability as nobody external to the market (buyers/sellers) are pulling strings to create a false sense of security/stability.


If the RBNZ is going to go down the fools path of pumping the housing market until it dies, just as the RBA have, they had better get onto it quick.

Once house prices are falling at a rate of say 8% per annum as they are in Sydney, it becomes very challenging to remove the LVR macroprudential limits because they are effective saying "banks please do go ahead and lend to someone who's 10% equity will be gone in a year's time".

How do you think stumping up to an Australian bank with a 10% deposit is going right now? Not well I can tell you. The banks want a bigger deposit. After all how does a bank that is predicting a further 10%+ fall in prices lend to a customer with a 10% deposit?

Hard to remove the limits during the boom, hard to remove the limits during a bust....probably because the arguments for having a tiny deposit are pretty weak at the best of times.

The problem isn't saving for the's house prices!!!

Removing them in a bust is common sense, otherwise the banks will start breaching the limits.

They're stabilisers.

AFAIK the LVR only matters at loan origination, so if the LVR limits stay in place existing customers going underwater wouldn't stop new lending within the LVR limits. (Of course the banks themselves would likely get completely gun-shy)

Yes exactly, it's the house prices.

As house prices fall, then any amount of money a home buyer is saving for a deposit becomes a greater percentage of the total needed, requiring them to borrow less, and thus a de facto tightening of the LVR.

Loosing of the LVR will only suck/lock in more local money into a fixed debt, when the fall in house prices is going to happen regardless.

A higher LVR will only delay, but make the inevitable worse for those that bought late.

as long as they put in depositer insurance to protect the forgotten customers of the bank
i mean our banks would not indulge in dodgy leading if they were allowed for the sake of a bonus like the aussie ones and lend to people who dont have the ability to pay if circumstances change (sarc)


Bringing in the last Turkeys before Thanksgiving lol.

"... we expect to gradually ease the policy in coming years."
So...not now then? Next Thanksgiving Day....

They must know something we don't know.

BTW with crude oil price now tanking they were probably right to 'look through' the temporary inflation that the last price rises would bring. Give them a plus for that.


Oh no people aren't getting themselves into so much debt. This is terrible how will the boomers fuel their SUVs! Oh the humanity. Quick Adrian fire the debt cannons now.


Whether its wff, first home owner grants, kiwi saver access or Lvr's - the end motive is to keep the property bubble going as long as they possibly can.


Bigger the Bubble - Bigger the Crash.

....and with rates already at 70 year lows, the longer the next slump will last. Not to mention the more widespread the carnage shall be.

Whether its wff, first home owner grants, kiwi saver access or Lvr's - the end motive is to keep the property bubble going as long as they possibly can.

Yes, it reeks of desperation, but the general public seems oblivious to it all and keep sucking up the story how "we're relatively better positioned than the rest of the world".

ignoring that the rest of the world is up sh*t creek


Is the Auckland market really starting to look that bad?
hmmm..... yep. Today's B&T auction results for the Bays area were 3 sold out of 22 = 13.6% success.
These results are scary.

Are you talking about the auction at shortland st or was this a separate auction at another venue? 3 were withdrawn, can't really count them as not sold if they didn't get offered

Move to where the true value is!
ChCh is the place of the future!
Be in quick

What a jokester

Dead serious!
Sales no.s up and median up hugely, what else can you go on in ChCh?

I'm not sure if TM is the court jester or the village idiot?

More like a RE agent trying to drum up some business

Banks are clearly not writing enough mortgages, that's why they dropped rates under 4% and why Kiwibank is keen for the RBNZ to reduce the LVR.
Given the weak state of the housing market it is probably reasonable to reduce the investor LVR by 5% and raise the speed limit on banks’ lending to those with less than a 20% deposit to 20% of new bank lending for owner-occupied borrowers,

I'm guessing that's kind of a lipid troll, but in reality, I think you have captured the state of mind of our economic architects.

Not a chance in hell of the RBNZ relaxing rules. Absolutely not a chance.

I love seeing articles like this because it lets me know who has and hasn't done their homework.


Thanks for sharing your opinion

What does Tony Alexander say ?
He’s never wrong
Got the pulse of economy

The reason I say not a chance in hell, is because the property market has grown so large it is now 500% of GDP.

The reserve bank won’t want a financial stability issue, hence why they have capital requirements and LVRs in place, to restrict house price growth, in the attempt to inflate the market away with general inflation (leaving the ocr low)

As far as i know... Total housing value has always been more than 500% of GDP..

You need to check your numbers. It was 100% of GDP in 1990, and has grown ever since

You are right... sorry
RBNZ stats show 1990 nom. gdp around $80 billion housing stock $126 billion.
2017 nom gdp about $280 billion housing stock about $1 trillion..

The government will soon have political control of the reserve bank. Then a relax of the LVR's will be ordered. Normal trading banks will remain sensible (for a while). But Kiwibank will get a cash injection to allow them to lend to marginal borrowers for Kiwibuild or other homes within the agreed value cap. Some sort of government underwrite will be in place to protect them from any loans that go bad. Big banks won't mind too much as they wouldn't/couldn't lend to those people anyway. But it will create the liquidity in the market that allows other creditworthy customers to trade. Will crank up early 2020 to give a nice equity bump to everyone before the election later in the year.

Rastus, dead serious.
Rental returns are positive and capital gains assured!
How is that meant to be funny?
Missing out is not that funny!!

If what THE MAN 2 says is true, that you can buy properties in Christchurch that have immediate positive returns then this does present an opportunity for someone to follow his path.

I would recommend actually living in Christchurch in order to do this. Another major earthquake would be the main risk.

The credit aggregates from the RBNZ look bleak. Worse that I guessed it would be by now, and that's despite forward guidance, and an unprecedented lowering of the cost of borrowing over the last year. Check it out.

Thanks but no thanks RBNZ. You'll have to find a greater fool than me.

Perth is looking very unwell for investors. 50% of P.I are underwater . (5min 50 into video).

30% drop in rental yields has really got to hurt.

Wow, they interview an investor that has a massive 4 properties, and he is an expert?
Investing is about buying right and achieving a positive yield.
If all these people,in Perth are in negative equity and negatively geared then they probably shouldn’t have been an investor

You have a massive 4 properties and consider yourself an expert. I don't understand the outrage.

If/when the same situation happens in Chch will you realise that you shouldn't have been an investor?

Wow, they interview an investor that has a massive 4 properties, and he is an expert?
Investing is about buying right and achieving a positive yield.
If all these people,in Perth are in negative equity and negatively geared then they probably shouldn’t have been an investor

Cheap money, seminar promising tax saving and heaps of great capital gains. All sounds good...until leverage works in reverse (its just math and can actually happen). Sound vaguely familiar...but couldn't ever happen here because milk trumps iron ore for sure.

that is crazy $626k for that? Not even a standalone house, wonder if the buyer owns the other half of the site?