Extending LVR limits to non-banks "nanny state" idea

Non-banks have expressed concerns about the Reserve Bank's potential extension of loan to value ratio restrictions and the impact it could have on smaller lenders.

Thursday, July 18th 2019, 9:48AM

The central bank is reviewing whether all lenders -- not just banks -- should be subject to LVR restrictions, as part of phase two of the review of the Reserve Bank Act.

The review is one part of a wide-ranging consultation. The Reserve Bank says current LVR restrictions "could be undermined" if non-banks "are willing to offer the loans that the Reserve Bank has restricted".

Terry Butler, acting chief executive of peer-to-peer lender Southern Cross Financial, fears an LVR extension to all lenders could impact availability of finance, and investment opportunities for P2P investors.

Butler said a widening of LVR was symptomatic of a "nanny-state philosophy".

"Individual investors place their funds into individual loans, so if they don’t like the risk profile, for example if the LVR is too high, they simply do not invest their funds there. By imposing restrictions on us, they are taking away the free choice that those investors have. This is simply an extension of the nanny-state philosophy that is invading all sectors of our life," Butler added.

Butler added: "The RBNZ would be taking away investors' ability to make their own decisions. Why? Do they not think that our investors are intelligent enough to make these decisions?"

Martin Brennan, chief executive of Gold Band finance, said wider LVR restrictions could hurt small businesses.

“It would clearly impact non-banks, as one of the points of difference has been the ability to offer advances beyond LVR rules. It would have an impact not just for Mr and Mrs buying a house, but for businesses looking to raise financing."

Brennan questioned whether an extension to non-banks would have a significant impact, given non-banks' small share of the market.

"You'd think smaller non-banks would not be a factor on residential property lending in New Zealand," he added.

Butler agreed: "The non-bank sector in NZ is tiny. Any moves from the RBNZ to restrict LVRs in that sector would have no impact on the market, but would impose another unnecessary layer of compliance on what are relatively small businesses."

The future direction for LVR remains unclear. In recent speeches, RBNZ deputy governor Geoff Bascand has indicated LVR could be a "permanent" fixture, but has also suggested loosening speed limits again. Consultation on the Reserve Bank Act is open until mid August.

Tags: RESIMAC Southern Cross