Restrictions on home loans tipped to ease
Economist predicts a change to LVR by the end of the year
Home lending restrictions could be eased again by the end of this year, an economist is predicting.
The Reserve Bank left property loan restrictions on hold yesterday after easing them slightly in January.
Loan-to-value ratio restrictions have been in place since October 2013, requiring most home buyers to have a 20 per cent deposit.
In January they were eased to allow banks to lend up to 15 per cent of their new lending to owneroccupiers with a deposit of less than 20 per cent — up from 10 per cent. At the same time the cap for lending to investors eased to allow the banks to lend up to 5 per cent to investors with equity of less than 35 per cent — down from 40 per cent equity.
Michael Gordon, senior economist at Westpac, said while there were no changes to the restrictions this time he expected that to change by the end of the year.
“We expect an easing by year-end as new Government policies weigh on investor demand for housing,” he said.
In its financial stability report released yesterday the Reserve Bank said that household mortgage debt remained high.
“However, financial risk has lessened with both lending and house price growth slowing in the past 12 months — in part due to our imposition of loan-to-value ( LVR) ratio restrictions.”
Reserve Bank governor Adrian Orr said it would be looking to at least the next financial stability report before it made any further decisions on easing lending restrictions.
The next report is due out at the end of November. “It is still early days around the slower credit growth we have observed,” Orr said at a press conference held after the release of the report.
Credit growth — or the amount of money the banks are lending out — has slowed to 6 per cent in the last year which was still slightly above income growth. While the growth in house prices had slowed to 4 per cent in the year to April.
Orr said one challenge for the sector was that while the loan restrictions had an impact on new lending it would take a long time before the average risk levels across bank loan books became more comfortable.
The central bank’s report said the continued stabilisation, or a further reduction, in the growth rates of household debt and house prices, would be required before the risk to the financial system was normalised.
Gordon said despite the vagueness of the Reserve Bank’s criteria for easing loan restrictions he believed they would be met before the end of the year.
“The Government is introducing a series of new policies aimed at cooling investor demand for housing, one of which is already in play: the extension of the ‘ bright line’ test for taxation of capital gains came into effect at the end of March.”
Gordon said house sales and prices were fairly muted in April and the bank expected that to be repeated over the coming months.
“We are forecasting annual house price growth to slow to zero by the end of this year.”
That may be more pessimistic than the central bank’s own predictions.
Deputy governor Geoff Bascand said yesterday he expected house price growth to have a moderate track over the next few years rising at about 2 to 3 per cent a year.
Orr also said some of the Reserve Bank’s reluctance to ease the restrictions was around what the banks would do.
“Our challenge around confidence is to think what would happen in the absence of these LVRs.
“Would banks go back to their less prudent lending behaviours or would they have picked up a lesson?”
He said this issue would be part of its conduct inquiry into the banks and it would be talking to them about their lending horizons.
Our challenge around confidence is to think what would happen in the absence of these LVRs. Would banks go back to their less prudent lending behaviours or would they have picked up a lesson?
Adrian Orr