RBNZ says the risks to financial stability posed by high-LVR lending have reduced to a level where the current restrictions may be unnecessarily reducing efficiency

Absolute madness. Just shows how politically charged the rbnz is. First signs of the market correcting to more sustainable levels and they open up the tap again so we can continue the crazy cycle - plenty of other levers they could pull.

Haha yeah. But this is a strange comment

"while house prices may continue to fall, the probability of a further large correction in house prices has reduced."

With inflation still running high (and expected to take a year or more to be back in the target range) and current deficit a mess... Its going to take one black swan event to put a massive hole in the housiñg ponzi.

But hell what are the odds of another unforseen event.. last 10 years or so have only seen a global  pandemic, GFC, ukraine war, brexit, trump elected, climate catastrophes... and a cold war emerging between a dictator and the usa and uncontrolled AI development 

Borrow borrow borrow guys.. buy into the ponzi. Crash risk is reduced .. but if it happens you know they will say.. it wasnt foreseeable by us..

(If u do feel a need to borrow maybe consider  to bid for an unfloodable nuclear bunker with medical grade air supply and no externally connected tech -> those properties may rise in value quite rapidly lol).

Might be the start of a transition to using DTI's over LVR's as a prudential tool for managing lending risk - which could be more appropriate if/as prices fall further. 

(i.e. the futher prices fall and the closer we get to the bottom (wherever that is...) the risk of being in negative equity reduces and hence the less need there is for LVRs)....that said, there is still scope for significant price falls if we are to return to price to income rations of 4-5, so lending to people with these modified LVR settings is still risky (in my opinion) It opens up the door for more owners to be in negative equity in 12 months time if price falls continue at the same rate as the last 12 months (which is entirely possible). 

I'd look at these changes as tinkering around the edges so wouldn't get too outraged. It was worthwhile (getting outraged) in 2020 with the LVR changes they made then, as that wasn't tinkering around the edges...it was proper madness that allowed huge amounts of risky debt to be issued which ,with prices down now 20% in some markets, could be/is well and truly in negative equity. That wasn't smart lending or prudent supervision of our retail banks. 

Addy, look we will keep you in the job because you are great at compliance with our need to " know what's best for the people"

Thanks Robby.

Now Addy, we need to look hot going into the election and we need to get young FHBs into houses or we lose votes oopps I mean we create a new jeprodized youth 

No problem Robby. But many FHBs are using the system, via thier parents wealth, to great advantage!

 Ignore that  Addy. It's about the votes oops I mean peeps 

Perhaps the hope is that cashed up investors are willing to step up and take the losses from struggling FHBs who can no longer afford repayments.

The recent FHBs may no longer have any equity left in the property they purchased in 2020-2021, but at least if an investor buys with a 35% LVR, they should be able to survive even if the market drops another 10-20%, while they FHB may not be able to.

This thinking might sound crazy...but having worked in Wellington...these types of discussions could have been taking place behind closed doors. 

i.e. 'lets use investors equity to take the hit in more house price falls that we're forecasting - as opposed to putting even more FHBs into negative equity'.

Because lets face it, giving FHBs more debt by looseing up LVRs doesn't make one shread of difference right now. If they can't afford a certain amount of debt at current LVRs, they can't afford even more debt with an even greater LVR! 

The Ponzi must be saved 

That could be the only explanation. Doesn't really make any sense unless they're terrified that the nudge tactics that they've built around the Ponzi have lost their mojo or that their private bank mates are slowing down dramatically. 

Let's see how the sheeple react. Not the best time to load up on private debt one would think. 

I suspect this is correct.  

But it is interesting to consider why the RBNZ is doing this.  Their mandate is price stability, maximum sustainable employment and financial stability.  With inflation at twice the upper bound of the target range, and current employment above what they consider the "maximum sustainable" level they aren't doing this to achieve either of these goals - lowering LVR's works against these two objectives.  

So the only reason they can justify doing this is to meet their "financial stability" objectives.  Yet they have repeatedly claimed banks can withstand 40% house price falls.  So why intervene now?

Its also interesting to compare with how slow they were to remove stimulatory polices during covid, even when it was clear the economy was returning to normal and inflation was running out of control.  Now we have inflation still out of control, the economy still running too hot, yet they are already trying to add stimulatory policies back in.

March data which is out in a few days must not be good reading

Yip agree - if they are widely removing LVR restrictions while dropping interest rates, then I think that is absurd (aka 2020). That just creates a feeding frenzy and creates huge risk of people finding themselves in negative equity (such as what is playing out right now...and as many commentators on this site were warning about in 2020-2021). 

Bu if interest rates are rising/steady, and they make very small changes like this, I don't think it makes much difference really to the overall market risk. 

All. This just means double income young professionals with high incomes can buy a place. 

Concur, if they can't afford the stress test rate at current LVR settings for a given amount of debt...what good is offering them more debt that they certainly won't be able to afford under the stress test rate...

If interest rates were falling my view would be different as reducing LVR settings while interest rates are falling is like creating a feeding frenzy for starved vultures. Aka 2020-2021 and just creates speculative froth in the market and is the opposite of fostering financial stability (i.e. the role of the central bank...)

Agree, and especially if DTI introduced within discussed timeframe.  In that case DTI and repayment affordability at next 18 months’ interest rates will trump LTV

Dunno, it’s a non-event really. But it’s likely to trigger a few reactions, despite that.

Situation is very different now Yvil. I was much against what they did in 2020, but this I don't think makes much difference.

Actually, I think this is a softening up before the announcement/implementation of some type of DTI arrangement. 

I think the reductions during the lockdown was to prevent the banks from foreclosing on houses after values plummeted. What came after was madness.

It could be argued that the LVR's core purpose, is to protect the banks, rather than the borrowers.  But my point above still stands, at a time of falling "V"alues, it does not protect the banks to issue more loans at low LVR's

Probably to achieve diversity in the lending book - ie. not too much weight in high credit risk. The RBNZ argues that the 'risk has decreased' so can allow more high LVR origination.

I think most would agree this reasoning is a sham. Through the smoke, my sense is that this is a desperate plea at creating an injection of demand into the collapsing ponzi.

-SMG.

by Yvil | 26th Apr 23, 9:55am 1682459712

What's the core reason for LVR's existence?  Is it not to protect borrowers?

If so, it makes no sense at all to reduce the LVR at a time when the "V" component, is dropping like a stone. This will only make new, weak borrowers, more vulnerable. 

More to protect the banks than the protect the borrowers. The borrowers are sacraficial (see those who they lent money to in 2020-2021 who are now in negative equity and they couldn't care about)

Were you aware Yvil that banks had been doing much more high LVR fhb lending at least one month ago. I commented on that and taking a positive view and got shouted down 

It says two things: that fhb don't agree with the recent asb survey saying it's the worst time to buy since 2009. And that the Aussie banks are quietly confident on the future housing market direction. Banks have pretty well always taken a conservative and risk averse view of a borrowers capacity to service a mortgage.

Kia kaha

As the RBNZ said, they feel borrowers are less vulnerable now as we are near the bottom of house prices and the top of interest rates. Of course they could be wrong on those assumptions, but that is always the case with any LVR move.

The risk involved when buying a house now is a lot less than it was 1 year ago. 

Cheers Tony

860k 3 bedroom kiwi build homes in Auckland have no takers... 60k interest alone on mortgage if you snap up one of them - to live in a swamp city with beach sewage leaks every 3 months and record high crime, you are in la la land mate. 

So what's your prediction? Every house made 50 years ago will sell for million + dollars?

There are certainly a deluded lot on the country. 

We have been looking to buy in Whangarei. There has been a surprising increase in the number of people I have seen at open homes - but the vast majority have been older couples. The few younger people I have seen are often accompanied by someone who looks to be a parent. I wonder how many of those potential buyers are going to not be able to proceed when they realise there is a lack of FHB who are willing and able to get a loan to enable the older folks to sell their place and buy the new property they have identified.

I’m seeing more people at open homes

Yes REINZ have echoed this ("agents report increased buyer activity"). For the last 18 months in fact. ...oddly right through the period where prices and sales volumes kept dropping, by record amounts.

To be fair they may have a point this time. I think the RBNZ are saying that we are near the bottom of the cycle hence there is less risk in borrowing and less need for them to restrict borrowing for financial stability. 

I've got a half-finished development in Mt Roskill that just needs someone with a vision and entrepreneurial spirit

You got it Metty. In a debt-based economy like ours, liquidity is a lot harder to maintain. It's not enough for people to want to spend, they have to be able to borrow.

VM in my opinion you are assuming a degree of foresight at the NZRB that just doesnt exist

While there is a lot of emotion in FHB decisions, they are not stupid.    The spruikers are talking a turning point, well it did not comeout in March data, and is not occuring at Mortgagee sales, lets just wait and look at facts like the April sales data, turning in winter... I doubt it.     A turn is more likely to arrive in Spring, but so too will a huge Pent Up Supply, incuding stuff pulled as offers where 20% below asking.

I see the S and P 500 took the stairs up all last month, but is now taking the elevator down.

Interest editors, could you put up a monthly chart of mortgage borrowing over the last 4 years, last month looked.... Interesting

Imagine the backroom arm wrestling going on between the RBNZ and groups like Business NZ, the bankers association, Simon bloody bridges and the chamber… oh and the national party patsies.

more debt…. yeah that will work!

let’s not let otara drop back below a mill!

classic

No.  Lettings house prices rise to level of stupidity was the risk - and that's baked in.

We know have financial instability as a result.  The damage is done, their is not way out of this now.

Get use to the idea - its pay the piper time.

I've had a mortgage broker tell me - "and of course your income will keep rising".