Bank agrees to revisit LVR if data shows up problem

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The Reserve Bank yesterday confirmed it has agreed to re-examine its new mortgage lending restrictions if data shows they are crimping the supply of new homes.

The bank's confirmation comes after it emerged the bank, the Master Builders Federation and building industry group Branz are working to assess the impact of new high loan-to-value ratio (LVR) restrictions which came in this month on those who are borrowing to build new homes.

Documents released yesterday by the bank, Treasury and the Ministry of Business Innovation and Employment showed the potential impact on the supply of new homes was considered but not thought to be a problem.

In advice to Finance Minister Bill English in July, the Reserve Bank said it didn't believe the LVR restrictions would affect housing supply. That was because property developers would not be affected, banks were cautious about making high LVR loans to finance new house building, and because there was a shortage of housing, particularly in Auckland.

But even as the policy took effect this month, the federation was warning it was already having an impact.

Chief executive Warwick Quinn yesterday said three or four weeks before the policy took effect, "we started to see quite a drastic reduction in some builders' workloads and potential contracts".

"People were walking away and phones stopped ringing."

Master Builders believed the new limits could affect between 2000 and 3000 new builds each year. It has linked with Branz to survey builders and home owners on the issue.

"We expect to be in a position later next week to see the results of that," Mr Quinn said. "We hope the impact is not high. If it is then the Reserve Bank has said they're happy to look at their policy.

"We think it's counter productive to what they're trying to achieve and there's a good argument to exempt new builds because they add to supply."

Mr Quinn said Master Builders had now discussed the issue with the Reserve Bank and Treasury.

Grant Porteous, managing director of Deacon Holdings - the master franchise holder for the 27 GJ Gardner building franchises - said they had "definitely lost business" as a result of the restrictions.

"The thing that really irks is that it's the very people who need help to get into the property market that this is actually stopping."

A spokesman for the Reserve Bank yesterday confirmed the bank was talking to trading banks about the issue and that it had agreed that "we will look at it if data suggests there is a problem, but we have not agreed to do anything as result of that".

"Finding a solution might be quite complex."