LVR rules only working at margins: Tuffley
ASB chief economist Nick Tuffley said the rules seemed to have had some success in improving financial stability but had not materially reduced the probability of a house price overshoot that would leave the market vulnerable to a sharp correction.
Banks have sharply reduced the amount of lending they do to borrowers with a deposit of less than 20% - something that the Reserve Bank had highlighted as a risk in the event of a downturn.
Tuffley said the Reserve Bank would likely see that change as a win for the rules that would encourage it to leave them in place a while longer.
“There’s been some success for financial stability through the shift in the mix of new lending if that situation continued over time, the composition of banks’ balance sheets would be less exposed to a crash in the property market so [the rules] have had some benefits. But in terms of reining in house price growth? The signs are a bit more equivocal.”
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