Changes to LVR policy signalled

The loan-to-value ratio policy has had "a dampening" impact on house price inflation, says the Reserve Bank of New Zealand. Photo / Dean Purcell

Loan to value ratios on bank mortgage lending could be in for a change this week when the Reserve Bank releases its financial stability report.

The rules came in last October, limiting to the total amount banks could lend to borrowers with deposits of less than 20 per cent.

But on Wednesday the Reserve Bank report could signal an end to the regime and finance minister Bill English told National Radio today that pressures were easing, decisions on LVRs were for the Reserve Bank to make, but he thinks its managers will move.

"They find themselves in a world where the current interest rate pressure is less than they expected and probably house price inflation is a bit lower than they expected. In fact most of the content of the current inflation rate is related to housing but it's lower than everyone thought it would be," he said on Morning Report.

LVRs were always supposed to be a temporary measure and he expects the central bank will end them, but he does not have a time line.

Phil Twyford, Labour's housing spokesman, has just released a statement saying LVRs are a failed experiment from finance minister Bill English to tame Auckland house prices.

The restrictions caused collateral damage to first home buyers and other regions, he claimed.

"The possible end of LVR mortgage restrictions is good news for first home buyers struggling to get into the market and for those in regions where house prices aren't spiralling out of control like Auckland or Christchurch.

"They have caused more harm than good with house prices falling in the regions and first home buyers being shut out of the market.

"The restrictions were too blunt and the impacts weren't considered properly. The home ownership dream has been put at risk.

"Bill English signed up to LVRs in a desperate attempt to tame the Auckland property market. But it wasn't until after he gave the Reserve Bank the green light to use them that he asked Treasury to consider the impacts on first home buyers and the regions. Unfortunately the horse had already bolted. The only winners were property speculators," Twyford said.

Then then cited data from CoreLogic which found 45 per cent of sales are to investors or landlords, with just 19 per cent going to first home buyers.

"That's not the country New Zealanders want to live in. The LVRs are a symbol of National's failed housing policy, badly thought through and poorly implemented," Twyford said.

But Graeme Wheeler of the Reserve Bank said last year that excessive increases in house prices in parts of the country posed increasing risk for the financial system and the broader economy.

"High and rising house prices increase the risk and potential impact of a major correction in house prices, and consequential loss to lenders. In a severe downturn, such losses would be expected to significantly reduce banks' willingness to lend. Similar views about the risks from our overvalued housing market are expressed by the IMF, OECD, and the major international credit rating agencies.

"New Zealand's house prices are expensive, based on international comparisons of house prices relative to rents and to levels of household income. And our household debt levels relative to disposable income - having doubled over the past two decades - are also very high," he said last October.