Westpac chief says LRV level will remain
New Zealand’s housing market is slowing, but calls for a swift lifting of lending restrictions seem likely to go unheeded.
A sharp drop in sales and early signs of falling prices have prompted some in the real estate sector to claim it is time for loan to value ratio (LVR) lending restrictions, which constrain the amount of lending banks can make to those with small deposits, to be lifted.
National leader Bill English called for the Reserve Bank to outline when the rules could be relaxed, although the central bank has not made its plans clear.
Westpac chief economist Dominick Stephens said the housing market had slowed markedly, much more quickly than the Reserve Bank had anticipated, and was likely to be ‘‘pretty subdued’’ for much of the next 12 months.
While part of the slowdown was related to the election, Stephens said the market began slowing in late 2016, driven by higher interest rates and ‘‘a little more difficulty accessing credit’’.
But Stephens said the restrictions, designed to reduce the threat to banking system from risky lending, were unlikely to be relaxed in the short term as the risks the housing market posed to the banking system was not affected by a slowing market.
‘‘The degree of risk in the system is not changing at a rapid rate,’’ Stephens said.
‘‘It’s far too simplistic to say there’s a drop in turnover in the housing market and house prices have flattened or fallen a wee bit and so therefore we need to wholesale remove the LVR restrictions. That’s totally off base.’’
Stephens was confident the LVRS would remain in place in the current form for at least the next nine months.
Infometrics economist Mieke Welvaert said the Reserve Bank appeared to be ‘‘nowhere near’’ the removal of LVRS.
If the central bank was minded to consider the LVRS it would signal a plan to do so in one of its sixmonthly financial stability reports, the next of which is due in November, before entering a period of consultation.
The bank would likely ‘‘look through’’ short term changes in the housing market, Welvaert said. Even if LVRS were removed, it did not necessarily mean lending would become easier, with the Australian banks taking action after ratings agencies Moody’s and Standard & Poors downgraded the sector.