Could securing a mortgage get easier?

The Auckland property market is flat to falling but experts don't expert the Reserve Bank to ease lending restrictions this week. Photo / Chris Loufte

Experts believe it is unlikely the Reserve Bank will ease back on mortgage lending restrictions this week but could look to make changes later this year.

The central bank will release its latest financial stability data on Wednesday - typically the point at which it gives an update on its loan to value ratio restrictions.

The bank lending restrictions were introduced in October 2013 but have been slowly eased back in recent years, with the latest tweak made in January after being announced last November.

BNZ economist Tony Alexander believes there is a 50-50 chance the Reserve Bank will ease its mortgage ending restrictions again this week.

But if he had to put money on it Alexander says the bar would move slightly towards no change.

"There is a chance. But the last two times they have waited until the November report."

Last November the loan to value ratios were eased, meaning from January banks have been able to lend up to 20 per cent of their new lending to owner-occupiers with a deposit of under 20 per cent - that was up from 15 per cent of new lending.

Weighing in favour of easing the restrictions is a falling to flat housing market in Auckland and signs that growth in the rest of the country's property market may also be slowing.

Even though the lending cap has been set at 20 per cent, banks are not lending up to it.

Alexander said the latest April data showed banks were still a way off the cap.

Figures from the Reserve Bank show just 12.6 per cent of new money was lent to those with a deposit of less than 20 per cent.

Even including the exemptions on lending for loans such as new builds it was 16.4 per cent.

Alexander said the restrictions were not keeping first-home buyers out of the market and two thirds of those with a low deposit were first-home buyers.

He said the big slowdown was in investor lending.

"If they were really serious they would ease up on investors because that is where the slow-down has been most."

But it is also where the Reserve Bank sees the biggest risks.

Reserve Bank of NZ Governor Adrian Orr.

In January the restrictions on investors were eased slightly. Up to 5 per cent of new mortgage loans to property investors is now allowed to those who have deposits of less than 30 per cent - from 35 per cent.

Kelvin Davidson, senior property economist at CoreLogic, said he believed any changes to the loan to value ratios were unlikely to happen this week.

"I'd say 99 per cent no, they won't change the LVRs this time."

"And I think that's the right thing to do – give the latest change (January 1) time to work its way through – also with 'rate wars', they probably don't want to add any more stimulus to the market anyway."

Banks have been competing to offer record low mortgage rates in recent months and there are no signs that rates are headed up any time soon.

Davidson said he expected a change in November to be much more likely.

That could involve a drop in the deposit level from 20 per cent to 15 per cent across the board.

Tauranga suburb of Welcome Bay.

Davidson said the fact that banks were not getting close to the 20 per cent speed limit could be down to banks being cautious or it could be there were not enough people able to scrap together the 20 per cent deposit.

"They can service the mortgage but can't get the deposit together. It suggests the deposit is the hard part."

Dropping it from 20 to 15 per cent could make a big difference to how much home buyers had to save.

"It might be two to three years of saving."

But he said policy-makers would want to be careful not to re-stoke the property market.

Davidson said there could also be some easing for investors as the 5 per cent allowance was very small and could be a margin of error for some banks.

"I think there could be some scope there."

He said it could increase to a 10 per cent allowance for investors who have a deposit of less than 30 per cent.

"Investors are not completely out of the market. While lower than it was compared to 2017 they still make up a quarter of the market."

That was down from around 30 per cent in 2015 or 2016.

He said investors were being faced with a lack of alternatives with the term deposit rates being so low.

OneRoof editor Owen Vaughan said any reduction to the LVR restrictions would be welcomed by first-home buyers.

"First-home buyers have been able to claim a bigger share of the market over the 12 months due to a retreat by other market participants, particularly investors.

"While the slowdown in Auckland has made it easier for some buyers - there's less pressure to buy than at the height of the market - the biggest hurdle to getting into a home remains the LVR requirements. Saving that 20 per cent deposit in Auckland can be challenge."

James Wilson, director of valuation and innovation for Valocity, said it was reassuring that the RBNZ was continuing the dialogue around the current level of LVR restrictions given the housing market is now experiencing softer market conditions in some of NZ's main urban centres.

"While the current share of mortgage registrations to first-home buyers still represents the largest share in most of NZ's main housing markets, there are still first-home buyers who are restricted from entering the market due to deposit thresholds.

"Those who were restricted from entering the market due to not having the minimum deposit amount have missed out on significant equity growth since their introduction."

Mark Collins, chief executive of Mike Pero Mortgages, said he doubted there would be any change on Wednesday.

"I think with the recent drop in the official cash rate there is a lot of stimulus in the market already."

The canning of the capital gains tax was also expected to buoy the market.

Collins said he expected the Reserve Bank's proposed capital increases to be finalised before any changes to the loan to value ratios.

Those proposals are due to be finalised by the end of November, around the same time as the next financial stability report.

Collins said the capital increases may mean loan to value restrictions were not needed.

He said LVRs were introduced in 2013 to curb bank lending because the banks were not doing it themselves.

But the world had changed a lot since then and banks had tightened their credit criteria.

Removing or lifting the LVRs would give banks the ability to lend more but the proposed capital increases would also make it more costly, Collins said.

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