Further easing of LVR limits predicted

Property information and analytics company CoreLogic - whose information is widely used by the Reserve Bank - is predicting that the RBNZ will further relax the loan to valuation ratio (LVR) rules in November.

And interestingly, CoreLogic suggests the RBNZ may reduce the deposit limits required by owner-occupiers - effectively changing the current definition of a 'high' LVR.

The last time LVR’s were eased was in January 2019 (nearly 6 months ago), it was not long after a rates war AND the introduction of the Overseas Investment Foreign Buyers Restrictions.

There are levers being pushed (LVR, OCR reductions -with 2 more forecast) but at the same time, others are being pulled (Implementation of Bank minimum equity requirements, ring-fencing, healthy homes etc) demonstrating there is clearly an active and intentional fine tuning of the market by the Reserve Bank.

The intention to actively influence and manage the housing and lending market is something this Government appears committed to seeing through. The Government Policy Makers seem to be gambling that they can positively influence housing affordability whilst at the same time, ensuring there is no market collapse. It’s an interesting experiment that is creating some polarising debate in online and public forums - see the comments sections in any online article on the matter.

However, an easing of LVR’s doesn’t necessarily mean that all existing,and would be, investors can now immediately jump into further investment lending and purchases - LVR is only one of the gates they need to jump through. The other is affordability of the lending - and given banks and non-banks are more and more focused on responsible lending, the affordability gate is an ever more difficult gate to jump over. So, although the potential to loan more is there, it’s not as easy as it once was.

That said, rents are increasing (and forecast to continue increasing) and so yields may trend upwards (if the market remains more subdued). Interest rates are widely believed to remain low for a long time to come and presently, it’s a generally held view that we have near full (if not full) employment.

So, although we are susceptible to any drop in Global Demand for our Exports (and all that that means for a country still so dependent on exports for growth or even survival of the economy), the pure economics of supply, demand, inflation, interest rates and immigration suggest that there is ongoing stability in the housing market for the foreseeable future - oh and potential for yields of old…..maybe?

Read the article on Corelogic’s predictions about LVR easing here.

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Happy Thursday.