RBNZ proposes LVRs be removed
WELLINGTON: The Reserve Bank of New Zealand is proposing loantovaluation restrictions (LVRs) on mortgage lending be removed as Covid19 wreaks havoc on the economy.
‘‘This move will help banks to keep lending to support customers, including with mortgage deferral,’’ the central bank said.
The LVRs, which went through several adjustments, were first introduced in October 2013 to curb an overheated housing market.
At present, there are two loantovalue restrictions in place: banks can lend only 20% of their residential mortgage book to owneroccupiers who do not have at least a 20% deposit and they can lend only 5% to investors who do not have a 30% deposit.
Before Covid19, there was no reason to remove LVRs, particularly since housing market value nationwide was up 9.3% on the year in February, according to the Real Estate Institute’s housing price index.
Reserve Bank data show there was $562 million of new residential loans on LVRs above 80% in February, out of $5.58 billion of new mortgage loans.
The panorama, however, has changed.
Stephen Toplis, head of research for BNZ, said New Zealand house prices were in for a 10% hit over the remainder of the year because of Covid19.
‘‘The single biggest determinant of whether people purchase a house is what they earn. In turn, this is most affected by whether or not they have a job,’’ he said.
He was expecting the unemployment rate to hit 8% by the end of the third quarter, Mr Toplis said.
‘‘The weakening labour market will be the biggest driver, but we also see reduced demand due to lowerthanexpected population growth, and increased supply, as properties that were previously rented out to tourists come to market,’’ he said.
The proposal is in response to the economic downturn caused by the Covid19 pandemic.
The consultation will be open for seven days. Feedback will then be collated and a decision made promptly after that, the Reserve Bank said. — BusinessDesk