To LVR or not to LVR?
|With the housing market continuing to slow, there have been calls for the Reserve Bank’s loan-to-value restrictions to be rolled back. But while lending restrictions are playing a role, the more significant factor that has caused the housing market to cool is the rise in borrowing rates over the past year. In addition, the financial risks that lending restrictions aim to address haven’t gone away, meaning the RBNZ won’t be in any hurry.
The housing market has continued to lose steam. Sales have fallen 25% over the past year, and house price growth has slowed to just 1% on a nationwide basis. This slowdown has been the sharpest in Auckland, where prices have fallen 4% since the start of this year. However, housing market conditions have been softening across the country.
This slowdown in the housing market has raised questions about whether the Reserve Bank will now loosen the loanto- value lending restrictions (LVRs) on home lending. We think that this suggestion is premature. LVR settings hinge on the degree of risk to the financial system. And at this stage, we’re not really seeing the evidence that risks around highly leveraged borrowing and debt have materially eased.
Why has the housing market slowed?
The slowdown in the housing market began late last year, and did initially follow a tightening in lending restrictions by the Reserve Bank. Last year’s changes included tighter restrictions on lending to investors, as well as some tightening in restrictions on lending to owner-occupiers outside of Auckland (where restrictions had previously been more permissive). While these changes took effect from October 2016, banks began adjusting lending from mid- 2016 to ensure they complied with the policy.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.