Reserve Bank ends LVR restrictions

Pointless as currently the banks don't want to lend anyway. Yet another case of products politically being on the shelf but in practice not being available.

Yes I agree Laurie, a customers loan servicing ability also determines their ability to borrower, job security and income stability are key, plus the bigger the deposit the better to try an avoid any high lend fees banks can charge.

Laurie - that's a very pessimistic outlook. The change is effective for 12 months, whilst people won't be able to use it right away, give it a good month or so when most people are back at work. First home buyers will actually to be able to go to auctions with pre-approvals.

As usual it seems that the people in charge at 2 The Terrace Wellington don’t actually understand the numerous restrictions been imposed on our banks nowadays by the likes of APRA etc. when it comes to banks lending money to customers.

Granted this announcement on paper should provide some help towards first home buyers who are currently struggling to enter the market due to a lack of deposit. However as others have stated already banks appetite to lend in the new post COVID-19 environment will be wholly dependent on people having stable jobs and working in industries unlikely to be impacted going forward. We don’t even know yet what the landscape is going to be like for most of our employers in 12, 6 or even 3 months’ time. With some of the banks themselves predicting a 10-15% drop in house prices why would banks now be eager to expose their home loan book to an increase in the number of new high LVR loans approved over the next 12 months?

On the subject of investment property mortgages banks will surely have little appetite to lend much more on these types of loans. Has the Reserve Bank also signalled that the banks will now not need the same higher capital requirements (as mandated currently) to be able to write these investment loans in the first place? Don’t forget the upcoming increased capital holding requirements been imposed on banks by Adrian Orr have only been postponed until July next year. Banks who decide now to let investors perhaps borrow as much as 80% against standalone investment properties will need to make sure they can actually afford to have these loans on their books in the future.

The much bigger reason why banks (and their customers) should be hesitant now to lend/borrow above 70% on any investment property would be the potential impact once the restrictions are reintroduced in 12 months’ time. It’s almost certain the Reserve Bank will again want to stop too many people putting their money back into property. They have been constantly patting themselves on the back over the last couple of years saying that the LVR restrictions are beneficial to the housing market and our economy. If Joe investor who has an existing property portfolio approaches his bank now and manages to borrow 80% against three new investment properties he’ll be ok up until when he comes to sell. At this point once the LVR restrictions are reintroduced his bank is not going to let him have any investment properties still sitting at 80%, they’ll all need to be at or under 70% so that his bank is fully compliant again with the Reserve Bank requirements. Don’t think that banks won’t do this to their customers because they have been doing it the last couple of years. With the above in mind and knowing how careful banks are to ensure they don’t run afoul of the Reserve Bank nowadays I don’t believe we will see banks rushing now to lend more to investors. Looks like the 2nd tier lenders won’t have to worry about some of their market share been potentially eaten into.

This announcement by the Reserve Bank might indeed have some positives on offer for owner occupied borrowers but the banks themselves will ultimately decide what level they want to lend to customers. Banks will also be very conscious that this is a 12 month hiatus only and that the new bank capital requirements whilst postponed are still coming next year. This is window dressing exercise by Adrian Orr.