Forget calls to move goalposts, it’s not going to happen
Real estate agents are wasting their breath calling for a removal of Loan to Value Ratio restrictions (LVRs). They won’t be be removed prior to the election and nor should they be.
Though the housing market has cooled there is a risk that it will bounce back post-election as spring takes hold. That would be a disaster for first-home buyers.
We know that population pressure is still far stronger than the rate of new building.
Those looking to get into the housing market need prices to stay flat — or ideally fall further over the next 12 months — long enough for housing supply to reach the kind of peaks that could prevent another bubble.
If that happens, LVRs will inevitably be loosened and firsthome buyers will be in far better shape than they would have been without them.
The LVRs have been highly successful in cooling the housing market, but even the Reserve Bank would acknowledge they have been just one of several factors. It’s possible they are getting too much credit.
The retail banks have also tightened their lending based on concerns that the market was in bubble territory.
Nevertheless, LVRs stand out as a policy that is doing what it is supposed to do.
Specifically, LVRs were designed to target New Zealand’s dangerously high levels of housing debt and remove the wider risk to the economy.
The growth in mortgage lending has slowed but not by enough yet to say that the job is done.
It seems highly unlikely that the Reserve Bank Governor, Graeme Wheeler, or his immediate replacement, Grant Spencer, will be swayed by any lobbying.
Spencer is currently head of financial stability for the Reserve Bank, so was instrumental in putting the LVRs in place.
Real estate agents are unhappy because the market is seeing a huge slump in the volume of sales — that affects their livelihood.
Their industry concern is understandable.
But the slump in the past few months is largely to do with the toughening of restrictions on investors — the big change to LVR rules last year.
REINZ’s claim that LVRs are hitting first-home buyers is disputed by Kiwibank chief economist Zoe Wallis.
“While REINZ notes that LVR restrictions have been particularly hard on first-home buyers, the data suggests that the recent changes to property investor lending LVR restrictions have instead opened up some opportunities for first-home buyers and other owner-occupiers,” she wrote last week.
“The latest round of LVR changes
Giving up on LVRs now would be akin to quitting a tough fitness regime after you’ve done most of the hard work but before you reached your goal.
has meant that the percentage of bank mortgage lending to investors has fallen from 33 per cent of all loans in July last year, down to 24 per cent.
“Over the same time period, the share of lending to first-home buyers has increased from 11 per cent to 14 per cent.
“Lending to other owner occupiers (ie, people moving up the property ladder) has also increased,” she concludes.
Many first-home buyers won’t need a 20 per cent deposit, either.
LVR rules allow banks to offer 10 per cent of their loans to owneroccupier buyers who have less than 20 per cent to put down as a deposit.
So, basically, if you have a decent job and in excess of 10 per cent on a good solid property then there is a good chance you can find a bank that will lend to you.
And even if that takes more time, LVRs are helping your cause.
You are less likely to need a $200,000 deposit if we stick to our guns now.
Prices are falling, so the pressure to get in the market quickly has gone. Would-be home owners can keep saving without feeling like they are being left behind.
There will, of course, be some people ready to buy now, who feel hard done by.
But it seems that the most aggrieved parties right now are would-be investors and the real estate agents themselves.
Giving up on LVRs now would be akin to quitting a tough fitness regime after you’ve done most of the hard work but before you reached your goal.
It would be a wasted opportunity.