Removal of LVRs - it's a bombshell and may be a very bad call

David Hargreaves questions the decision to totally free up house lending at a time when the market may be in for a substantial correction

21st Apr 20, 11:00am by David Hargreaves

I'm really not sure about this one at all.

Why, at a time when there must be concerns about a big drop in house prices would the Reserve Bank decide it's up to the banks totally to decide what proportion of high loan to value ratio (LVR) lending they do?

Are we saying now would be a good time for banks to be advancing 95% loans to first home buyers?

Okay. Banks are not idiots. They would be very guarded about giving high LVR loans at the moment, particularly to first home buyers and particularly with unemployment already rocketing.

But then we come to a second thought.

The move by the Reserve Bank means that the limits on housing investors will now be dropped.

It was the imposition of those limits (originally a need for a deposit of 40%) done, I suspect, very much as a desperate move in 2016, that levelled the playing field in the housing market and gave the FHBs an entry point back into the market.

Previous to that the mums and dads, the 'okay boomers', whatever you want to call them, had taken fine advantage of the fact that the FHBs were hamstrung by the original blanket imposition of LVRs from 2013 and had been able to outbid the FHBs.

That led to an unfortunate period of the FHBs being locked out of the market. And the country may yet pay a price for that.

So, okay, given that the banks are by no means idiots, they probably will retain very cautious lending to particularly the FHBs.

But what about financially independent boomers who despite the economic shock might be in a position to buy an investment property?

This surely is now their opportunity.

I would suspect this move to scrap the LVRs for now will mean that house prices don't fall as much as they would.

However, I think the move is likely to cause distortions in the market.

At the very least, I would not have removed the limits on investors.

This move by the RBNZ concerns me a lot (as you can probably gather) because it comes on top of the freeing up of some other hard-won gains by the RBNZ over the banks.

Already there's been a deferral of the new capital requirements. And the very practical requirements for banks to hold high proportions of deposits have been relaxed too.

These, and the LVRs, were all sensible, practical measures.

And, once we do emerge out of the other side of this thing, they are going to be measures that the RBNZ will have to row back on again.

I realise fully that drastic times require drastic measures.

I think dropping the LVRs now, however, will prove to be a mistake. Look, I really hope I'm wrong.

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157 Comments

by Rosenstein | 21st Apr 20, 11:06am 1587423963

The vampires are running out of blood. Anyone with a pulse will do.

by Foreign buyer | 21st Apr 20, 1:14pm 1587431673

This decision makes me sick. Can we have a no confidence vote in the RBNZ?

by Rosenstein | 21st Apr 20, 1:40pm 1587433202

How do you throw out a class of unelected financial terrorists?

by JimboJones | 21st Apr 20, 7:49pm 1587455381

Bollocks. The LVRs were a direct response to house price inflation. If there is no inflation there is no need for LVRs. You can’t expect the RBNZ to put their foot on the brake and never let it off again.

by Cowpat | 21st Apr 20, 2:29pm 1587436171

This is coming across the markets, comments from Mr Orr whether its been posted elsewhere
RBNZ Gov Orr says he is open minded on direct monetisation of govt debt.

by Retired-Poppy | 21st Apr 20, 6:02pm 1587448964

It saddens me that FHB's would enter this market on the eve of what will likely prove to be one of (if not the largest) house price correction in NZ's history. Now, the RBNZ is actively encouraging banks to adopt "courageous" lending practices. I believe that with multiple years of high unemployment coupled with eventual mass expiration of mortgage holidays, this latest move will prove fruitless in supporting house prices anyway. Banks, in support of their shareholders, willingly adopt "courageous" lending when its all going up! Once its all heading down, its labelled "foolish".Banks are not charities so they're in no mood to dig themselves into an even deeper hole.

Falling knives.

by Uninterested | 21st Apr 20, 11:07am 1587424067

Smacks of desperation..

by Independent_Observer | 21st Apr 20, 11:10am 1587424218

Yes makes me wonder what data they have seen that we haven't yet.

by Boatman | 21st Apr 20, 12:40pm 1587429637

I too am horrified beyond speech that the Reserve Bank has done this .

This is like throwing a whole lot of petrol on an open fire , its F())$%^ dangerous , and you risk getting burnt

by Independent_Observer | 21st Apr 20, 11:08am 1587424127

I think we might be in the search for the bigger fool in this instance. Who will it be:

a) The banks
b) Housing investors
c) FHB's

by Ptolemy | 21st Apr 20, 11:17am 1587424620

I suspect it will ultimately be taxpayers - again.

by ShoreThing | 21st Apr 20, 11:23am 1587425027

We don't get to vote for the RBNZ, and we don't get to vote for what is in the Policy Targets agreement. There is no way to hold these crooks accountable.

by Independent_Observer | 21st Apr 20, 11:58am 1587427097

Its not political - its systemic. Will be a bit like the end of feudalism. Will require riots against the kings/lords by the serfs who will then change the system to make it fairer (for a while).

by richard1965 | 21st Apr 20, 12:53pm 1587430433

Riots and Revolt on the street....in near future and the current system manipulated by politicans will change, how, do not know but all politicans will be taken to task and a new system will be born which truly represent average citizen.

Seems far fetched but cannot be ruled out. Wait and See.

by JasBurnt | 21st Apr 20, 7:44pm 1587455073

Is everyone going to turn up to the riots in their Hire Purchased 4x4 with Nanny and kids dropped off at sports camp

by thinktank | 21st Apr 20, 5:58pm 1587448693

by Believer1980 | 21st Apr 20, 12:03pm 1587427400

Net taxpayers and house owners are pretty much one and the same. Unless you include those who receive more in direct assistance from government than they pay in taxes in your "tax payer".

by ShoreThing | 21st Apr 20, 12:07pm 1587427644

Hi, net taxpayer and non-home owner reporting in. I'm in my mid-twenties and have a well paid job, and like most of my generation we have completely screwed by successive governments failing to address this issue. We are absolutely not one and the same.

by Lanthanide | 21st Apr 20, 12:43pm 1587429836

'pretty much one and the same' means you're a rounding error. And you are.

by ShoreThing | 21st Apr 20, 1:18pm 1587431930

Time only moves in one direction champ, more generations are coming down the line and will be locked out too.

by refactornz | 21st Apr 20, 3:13pm 1587438821

Except now you're not locked out because 100% LVRs are allowed. You just need to convince a bank that your high income is stable.

by Hummy | 21st Apr 20, 3:18pm 1587439083

He might work for one.

by ShoreThing | 21st Apr 20, 3:20pm 1587439230

Nope, I'm in IT. Would look to be fairly secure in the short term at least, judging by the amount of work we've picked up since lockdown.

by Te Kooti | 21st Apr 20, 12:59pm 1587430752

But hold on, doesn't requiring a lower deposit make it easier for you to buy a house now? No ones forcing you to do so of course, so why all the b+++ and moaning? LVR's were introduced as a macro-prudential tool to take some heat out of the market. Now that the RBNZ are easing policy to stimulate the economy, it's logical to remove them. Banks will make a credit assessment case by case.

by ShoreThing | 21st Apr 20, 1:04pm 1587431043

Would have thought it's fairly self evident - I want a home where I can raise a family and take a stake in this country, but I don't want to take on a life of debt serfdom for the privilege. But sure, I should stop bitching and moaning that every policy enacted in the last twenty years has been designed to force my hand in the matter.

by Foreign buyer | 21st Apr 20, 1:12pm 1587431539

They have let us know who they care about and its not the normal hardworking people, its the lords and ladies. So much for 'there is no class system in NZ'

by Te Kooti | 21st Apr 20, 1:20pm 1587432034

Many things contribute to elevated house prices, not the least of which are council charges and construction costs. The RBNZ has little influence over these and are trying to keep a small trading nation competitive in a low interest rate world. They also don't set the immigration policy, but with 670k of us in Australia we should probably not b & m about that either.

by Te Kooti | 21st Apr 20, 1:24pm 1587432269

In fact, the last time I checked housing was more affordable now than it was 10 years ago due to lower debt servicing costs. So what exactly do you want??

by Independent_Observer | 21st Apr 20, 2:04pm 1587434690

What about in terms of risk of experiencing negative equity for FHB. Now a good time to buy regardless of 'home affordability'?

by Ptolemy | 21st Apr 20, 2:05pm 1587434742

Debt servicing costs and housing affordability are not one in the same.

by ShoreThing | 21st Apr 20, 2:08pm 1587434882

He's being deliberately obtuse, it's better not to feed the trolls.

by Te Kooti | 21st Apr 20, 2:18pm 1587435480

If facts trigger you then you should stay in your safe space.

by Independent_Observer | 21st Apr 20, 3:07pm 1587438430

Facts...that you Donald?

What about the fact that we have some of the worlds most expensive houses and history would tell us that housing growth like we've seen almost always ends in a crash? Is that a fact we want to talk about? Or is that fake news?

by Te Kooti | 21st Apr 20, 3:37pm 1587440255

What did I write that isn't factual?

by Foreign buyer | 21st Apr 20, 2:18pm 1587435528

He's alright Jack!!!

by frazz | 21st Apr 20, 3:41pm 1587440484

3-4 x average income - (like when you brought your first house Kooti)

by Te Kooti | 21st Apr 20, 4:08pm 1587442082

The world, and NZ, are different for so many reasons. I don't recall Auckland ever being 3-4 x salary either and interest rates were 15%+ as well.

Don't get me wrong, I'm not unsympathetic.

by GV 27 | 21st Apr 20, 6:05pm 1587449131

Yes, but the idea of 'lowering your expecations and moving further out' was a starter home in Howick. Now, 'moving further out' for an affordable house is Auckland tends to mean 'moving into another district'.

by Te Kooti | 21st Apr 20, 6:40pm 1587451254

Do you realise just how silly that sounds? As cities grow, the population is pushed further out. Look at London, 30 years ago an average salary could have gotten you a semi in Clapham, now you need two professional incomes to do so. Auckland consistently sits in the top 30, 20 or even 10 most livable cities in the world. You can either complain about it or take the plunge further out and work your way closer in. That's the reality in most cities in the world.

by swapacrate | 22nd Apr 20, 3:52pm 1587527522

Looking at a house in Clarks Beach, 1994 $400,000. 2020 $2,000,000. Hasnt gone up much. Really easy for FHB. What a joke. This is an outlier, but fact remains, house prices to income are waaaaay over priced.

by Te Kooti | 22nd Apr 20, 5:45pm 1587534318

This one not good enough for you? https://www.realestate.co.nz/3751722/residential/sale/9a-crispe-road-cl…

by company of heroes | 21st Apr 20, 2:15pm 1587435334

Te Kooti, this is not about house anymore. It's about the stability of our financial system and our economy. To be honest, I dont care too much about housing price coming down or going up as long as it's sustainable. We all know that we are in a midst of crisis, people are losing jobs and losing incomes. These people could be house owners or multiple houses investors or even non house owners. Yet we are still asking them to borrow more money to inject into this housing bubble thing. Cant afford a house? No problem. We got you covered. We lend you money at historical low interest 0.25%. No savings? No deposit? No problem. We got that covered too. But for how long? It's not like you are gonna pay it off in one year time. You wont hold that 0.25% interest rate all the time. You might be stucked with this for 30 years. You are not forced but you are encouraged for sure. Not requiring a lower deposit actually making it harder for FHB to buy a house. Remember you are not paying those 20% deposit (you supposed to have) back only, but with a interest.

by Te Kooti | 21st Apr 20, 2:28pm 1587436082

Many commentators need to grow up. Walk into a bank tomorrow and try and borrow with an LVR >90% and see what sort of reception you get, I dare you. Only the most blue chip borrowers are going to get that sort of LVR, possibly with a parental guarantee or collateral.

The whole narrative that banks lend recklessly because they are going to get bailed out is immature nonsense.

by Independent_Observer | 21st Apr 20, 3:10pm 1587438634

By blue chip you mean property investors with 5+ houses? Like those people who have contributed to causing this housing ponzi?

by Te Kooti | 21st Apr 20, 3:40pm 1587440457

Blue chip = good credit.

If you have a bee in your bonnet about people owning multiple properties, just come out and say it. I'm simply saying that the RBNZ's decision makes perfect sense to me. If you want to bundle LVR loosening with a rant about socialism and property just be explicit about it.

by Nzdan | 21st Apr 20, 4:33pm 1587443590

I think the bee in the bonnet is the unfair advantage an individual "in business" can have, where portfolio equity growth can be used (via mortgage top up) as down payment for additional property, targeting the lower end of the market where First Home Buyers enter. At Interest Only, they can borrow an extra 30% - 40% on the same monthly outgoings versus P & I.

If Landlords were forced to take out business loans to expand, because you know they're in f**king business, then you might see a level playing field and less hot headed Millenial.

by Te Kooti | 21st Apr 20, 4:42pm 1587444137

My comments are on LVR changes, not equity withdrawal or landlords. I'm not debating the latter.

by company of heroes | 21st Apr 20, 3:16pm 1587439014

That's where the risks are going to be. Of course FHB or normal income earners wont get that sort of LVR. It's most likely for those multiple house owners or investors to use their houses as collateral. So they will get zero deposit mortgage by using their another house as collateral. What happen if their another house's value decreases and they can't pay off their mortgage? Can't you see the issue here? It's 08 GFC all over again.

by Audaxes | 21st Apr 20, 6:30pm 1587450609

Now that the RBNZ are easing policy to stimulate the economy, it's logical to remove them.

Leveraged buying and selling of existing residential properties by the creditworthy few is akin to taking in each other's washing and does not qualify for inclusion in the GDP statistics.

by thinktank | 21st Apr 20, 5:58pm 1587448707

If you're in your mid 20s you have probably had 5-7 years in the workforce. If you saved 40% of your income instead of pissing it up against a bar or travelling the world like your instagram mates you could have a deposit for an Auckland house by now.

by ShoreThing | 21st Apr 20, 7:33pm 1587454437

Cheers for the patronising comment you cretin. I’ve saved and invested my money steadily over the last 6 years, I save about 84% of my income. Probably piss less away than you do too. Whether I have a deposit saved and whether houses are affordable are two different things.

by swapacrate | 22nd Apr 20, 4:01pm 1587528077

Not sure what world you live in but 40% of income with current costs. Thats a joke. Just simple costs, rent, take over 50% of cost. Whereas in older days, people could have kids and pay off house on single income. People are so patronising nowadays.

by stuart786786 | 21st Apr 20, 12:22pm 1587428574

Big Fools : Tax payers and people with deposit in banks.

May be all should withdraw their deposit and put it in locker as it is not generating any interest/income.

Seriously anyone with deposit should withdraw and protect. Safe deposit lockers may be more safe than bank or any place that government can lay their hands on.

by Independent_Observer | 21st Apr 20, 12:39pm 1587429580

And tax payers? Just not pay taxes anymore? Death and taxes - or can we now choose these things?

by Yvil | 21st Apr 20, 1:38pm 1587433133

Yes you can choose taxes. There is no CGT or wealth tax or land tax in NZ, you know that, so you can choose to put your money where it doesn't get taxed. Up to you

by Independent_Observer | 21st Apr 20, 2:03pm 1587434621

Oh forgot that we no longer live in an income generating world (PAYE, RWT etc) - just speculation on tax free capital gains.

My bad - I apologise.

by StuckAtHome | 21st Apr 20, 2:07pm 1587434851

I'm off to buy a safe once the lock-down ends. SAVERS REVOLT!

by Beanie | 21st Apr 20, 3:15pm 1587438940

Yep just notified my bank that its got too wierd for me, and with no deposit guarantee I am putting my savings elsewhere next week. The only thing that would change my mind is a government guarantee as per the GFC.

by nigelh | 21st Apr 20, 2:39pm 1587436782

You left out those with cash and TDs. OBR in the next 6 months anyone?

by ExPatKiwi | 21st Apr 20, 11:21am 1587424896

RBNZ will next allow approval of NINGA loans and will buy them off the banks.

by Basil brush | 21st Apr 20, 1:30pm 1587432634

*NINJA

by Yvil | 21st Apr 20, 1:40pm 1587433226

Are these ginger ninja loan?

by Pragmatist | 21st Apr 20, 2:27pm 1587436023

gingerninja won't lend to you at 100% LVR, she's way too smart for that.

by Voiceofreason | 21st Apr 20, 11:26am 1587425178

Not now, but if the market does go down substantially – I'm talking -30-40% or more over the next couple/few years, and interest rates are very low – that would be a good time to buy. Couldn't happen, right?

by Whatwillhappen | 21st Apr 20, 12:10pm 1587427828

Picking the bottom of the market is a fool's game. Just look at what happened to the guy from Harvey Norman. Property is a long game. Those who aim for a quick buck are rightly reviled. If Iwere asked I'd say keep the LVRs for property investors (raise them to 50%?), drop 'em for the FHBs. That should always have been the case.

by Rob | 21st Apr 20, 3:00pm 1587438004

You could say that for shares but property tends to be slower moving and if someone is buying the house to live in the bottom of the market may not matter that much. Just buying it at a good price maybe more important. Experts have been saying foryears that houses are over priced and in many places they are compared to what we earn. It was a recipe for disaster.

by SmoKey | 21st Apr 20, 11:27am 1587425272

Manna from Heaven. Enjoy.

by Theoracle | 21st Apr 20, 11:35am 1587425732

It's a crazy, new upside-down world now.

Absolutely nothing in relation to lending and banks will surprise me anymore.

A few comments from a lender I know (big 4)...

"Calls in to call centres now quadrupled".

"We're doing 400 business hardship loans a week"

"Small businesses are fucked"

"Credit policy no longer applies..."

"We're approving loans with no idea of forward sales"

"Loans which would never normally get approved now fine cos govt backing it"

So therefore the corollary...

Get into it!!

by CN | 21st Apr 20, 12:10pm 1587427851

Covid 19 coronavirus: Payments on more than 80,000 loans reduced or deferred

https://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&ob…

by bw | 21st Apr 20, 11:36am 1587425787

"I think dropping the LVRs now, however, will prove to be a mistake. Look, I really hope I'm wrong. "
You aren't.

by Boatman | 21st Apr 20, 12:44pm 1587429870

I too am horrified beyond speech that the Reserve Bank has done this .

WTF are they thinking ?

The housing market was so hopelessly overpriced it was beyond comprehension

It is right that it must adjust to the new reality .

If the banks write losses from NPL's then its their own fault for lending out mortgages at way over any rational valuation for the past 7 years since 2012

by richard1965 | 21st Apr 20, 12:56pm 1587430591

WTF are they thinking..

They are instigating public for revolt.

by ham n eggs | 21st Apr 20, 2:35pm 1587436547

They are (correctly) thinking that without more DEBT in the system, it all blows … and I mean everything
New Debt has been our (collective) income for a while
If and when debt blows, incomes follow and then its basically chaos

by Rosenstein | 21st Apr 20, 11:05pm 1587467135

And then we eat the Governor with a side of fava beans

by Nzdan | 21st Apr 20, 11:39am 1587425975

Popcorn

by delboy | 21st Apr 20, 11:41am 1587426084

Loosening of the foreign buyer ban could come next. After all property is our biggest business and too big to fail.

30 years of more and more Govt and council regulations have stifled entrepreneurship here in NZ, so much easier for business people to just invest in property rather than innovation or expansion.

by Mikey | 21st Apr 20, 12:29pm 1587428975

Not sure you're right about govt and council regulations. NZ has repeatedly been found to be the easiest place in the world to do business. I suspect poor business acumen and declining education standards have more to do with it..

by Framan | 21st Apr 20, 11:41am 1587426111

i quite agree that the LVR should have remained in place. Anyone keen to start a petition?

by Glitzy | 21st Apr 20, 11:53am 1587426820

yes.

by Foreign buyer | 21st Apr 20, 12:50pm 1587430221

Prefer a riot

by StuckAtHome | 21st Apr 20, 2:09pm 1587434991

A bank run would have more teeth...

by Foreign buyer | 21st Apr 20, 2:21pm 1587435668

Its already happening in slow motion

by Boatman | 21st Apr 20, 8:54pm 1587459247

I was wondering about that , do you reckon a Bank run is taking place in slow-mo during the Covid lockdown ?

I have heard about people queueing at ATM's in Auckland and was wondering what that is about when we dont need cash at all in the world we live in.

by Alittlebit | 21st Apr 20, 11:48am 1587426513

ANZ called [for first time ever] last night to see how things are going and any questions. Assured me my deposit was ok....." Where else would you put it?", was her reply. I reckon house prices need propping up, because the banks can't fail.....can they?

by Independent_Observer | 21st Apr 20, 11:56am 1587426981

Got a letter from John McFarlane (Westpac) yesterday. 6 pages long. Sounds desperate. Trying to tell shareholders we're in trouble and we're in trouble.

by richard1965 | 21st Apr 20, 12:58pm 1587430690

Where else will you put it..

Withdraw and put in safe deposit box.

May be this action of RBNZ will trigger mass outflow of cash from the bank.

by Brock Landers | 21st Apr 20, 2:44pm 1587437064

Perth Mint.

by Glitzy | 21st Apr 20, 11:52am 1587426774

The point is that this collective brain fart at RBNZ has also blown their credibility out of the water.

The move cannot be rationally justified on any level.

The government need to step and sort this out. If it goes unchecked its highly likely that should a bank unilaterally decide to loosen its lending criteria a taxpayer bailout will be required in years to come.

by Boatman | 21st Apr 20, 12:46pm 1587429975

@Glitzy, 100% correct ...........the RBNZ has lost the plot this time around , WTF are they thinking ?

by Quiet Desperation | 21st Apr 20, 11:53am 1587426800

I wish I could call this unbelievable... but I'm not actually sure what would truly surprise me anymore.

by THE MAN 2 | 21st Apr 20, 12:02pm 1587427373

The LVR drop is fair enough as it will allow property transactions to take place.
The Banks will still be very wary as to whether the borrower can service the loan!
Not too sure what people reasonings are when many on Interest.co just knock any decision that can assist people to buy property for both owner occupation and investment?
If I didn’t own property now would be a chance to buy!

by Quiet Desperation | 21st Apr 20, 12:18pm 1587428290

We hardly need more 'investment' of this kind. We do need far more owner occupiers.

by Rosenstein | 21st Apr 20, 12:37pm 1587429420

"Trust me. I'm not driving a 7 series without strippers. No one one the pole has good credit and they're all cash rich"

by gordon | 21st Apr 20, 1:06pm 1587431217

Anyone who has half a brain will be waiting to see where house prices go before they start buying. The massive unemployment figures and business failures will kick in at some stage. Like shares you need to see a bottom and then a slight lift then get in. Why borrow more than you need to.

by THE MAN 2 | 21st Apr 20, 5:01pm 1587445297

Gordon, if you are an investor that knows what they are doing, then why bother waiting.
Those that seize the moment are the ones that do well after events and that will never change.
10% returns and surety of property values is good enough for me

by Foxglove. | 21st Apr 20, 5:33pm 1587447225

There was always with the previous government a mantra that the market will take care of itself and in some way this new situation is reverting to that. And in that TM2 has a point, the banks are under a squeeze and will be so for some while. Not the platform for reckless lending, far from it.

by Independent_Observer | 21st Apr 20, 11:59am 1587427193

Wonder what the average property ownership rate is like at RBNZ?

Anyone think it will be 3 or more properties per person on average?

Any bias issues here?

And should people working at the likes of the RBNZ have to put their assets other than their family home into a blind trust so they can be impartial to policy?

by Quiet Desperation | 21st Apr 20, 12:21pm 1587428508

I think you would find the bias to be quite massive, were they forced to be more transparent.

by Hamish | 21st Apr 20, 12:14pm 1587428056

The only possible reason I can think of to allow this is so that investors can buy out recent FHB's who now find they can't service a mortgage and just need cash in hand to keep them going for a bit until they can regain employment. I cannot think of any other useful reason to allow this.

by MLSmith1 | 21st Apr 20, 12:17pm 1587428265

Uncertainty will also bring opportunity for first-home buyers to get into the market. Risky though! Guess its tradeoff between unable to ever acquire deposit level vs further deflation.

by stuart786786 | 21st Apr 20, 12:18pm 1587428288

Governor and Government should be made to give undertaking that if this decession which is bound to misfire and result in bank being overexposed (Already are) and default should be allowed to be prosecuted and assets of all agencies and ministers, MP responsible should be conficated to pay.

Have to be made liable.

It also goes on to prove the saying that politicians of all breed flocks together..Be it National or Labour.

Trying to encourage speculation and FOMO in FHB. As a result of this FHB will face the consequences of inevitable downfall and Government giving opportunity to speculators to exit.

Recipe for Disastor and now do agree that Labour is no good as far as economy is concern.

Difficult times and now convinced that though Labour manage to contain virus but will fail miserably in economic front and will and is leading to bloodbath....

by CN | 21st Apr 20, 12:24pm 1587428699

If the RBNZ is going to remove LVR restrictions, they should be imposing DTI limits. For example, no more than 3-4x post COVID19 income

by Tillers | 21st Apr 20, 9:07pm 1587460079

That would severely limit the amount of lending banks can give out

by richard1965 | 21st Apr 20, 12:26pm 1587428811

This signifies that Reserve bank and Government have some information / data that is not in public domain And their fear / they know is that the fall in house price may be worse than 10% or 15% as expected or forecasted.

More the reason to be away from the market.

Wait and Watch.

by Mo | 21st Apr 20, 8:48pm 1587458884

Yep. Likely correct. It's deck chairs at the end of the day as private debt levels baked in.

by Harry B | 21st Apr 20, 12:26pm 1587428787

I have just sent an email to Grant Robertson voicing my concern at this appalling decision
As a taxpayer and a bank depositor I will be in the firing line when the banks get into strife and come back to the government for a bailout
If I don’t get caught by the bank I will be on the hook as a taxpayer
This decision is crazy so much for the RBNZ being there to keep the banks financially stable
Perhaps they have changed their mandate ,perhaps they see their job as making the banks UNSTABLE
What next will they come up with, 110% loans ,nothing would surprise me After this decision

by Glitzy | 21st Apr 20, 1:34pm 1587432845

Could you kindly share his email ?

by ShoreThing | 21st Apr 20, 12:28pm 1587428910

What really irks me about the RBNZ's consistent meddling in home lending is that they keep pretending it is a market. If the property market is an actual market, then let banks decide who they lend to and at what interest rates. Don't interfere with their operations, and don't bail them out when the market goes through a normal cycle of ups and down. Let them foreclose on homes, let bank shareholders be on the hook for the losses. But it isn't a market, because the RBNZ steps in to back the loans, and drops interest rates to keep it affordable, and drops lending standards so we can keep buying and selling houses. It's not a market because it isn't allowed to go down, only ever up. So, if it's not a market, and market forces don't apply, why do we allow banks to profit from it? If the RBNZ really wants to back everyones home loans and prop the market up ad infinitum, let's stop pretending and stop allowing the big 4 to extract obscene profits out of something that can never fail. The RBNZ needs to issue mortgages at a premium to the OCR, they can have full control of the market (which they do anyway), and let's stop this rort.

by fortunr | 21st Apr 20, 2:35pm 1587436530

I agree:
- artificially low interest rates is financially criminal, and only supports parasitic house speculation
- QE is financially irresponsible, as it prevents the money markets from working normally, and prevents risk from being priced correctly
- removing LVR is financial madness, as it impacts on the confidence in financial markets, not just on the future stability of financial institutions
The RBNZ Governor should be sacked.

All of this just to support the Ponzi scheme of housing speculation. The sooner this toxic bubble bursts, the better. Even if this means that the majority of house investors go belly up, so be it - the better for the real economy in the longer term. On the other hand, some support should be given to the FHB fools who believed in the myth of ever-increasing house prices and who have bought into the ridiculously over-priced market of the last few years, and who believed in the self-serving lies of the interested parties.

by MLSmith1 | 21st Apr 20, 2:54pm 1587437643

The Government must be concerned more people will be locked out of home ownership but with income uncertainty, even with price falling, the risk is crazy.
Else they are worried that bank balance sheets will be hammered too much by falling prices and want house demand to help prop them up!

by ShoreThing | 21st Apr 20, 3:14pm 1587438856

Largely agree with everything you've said except for supporting FHB fools. No one should be supported for making bad financial decisions. If you support fools, you encourage others to act like fools.

by cjmain | 21st Apr 20, 2:40pm 1587436847

comment of the day

by streetwise | 21st Apr 20, 12:31pm 1587429079

1. Only 4 people in our Fortune 500 have made their fortunes outside of property!

2. Only one or two of them have appeared to have contributed to helping in these trouble times.

3. Relaxing the LVRs will be used mainly by the already wealthy to increase their already bloated fortunes and
thus perpetuate the growing inequality in NZ.

4. Unless the super wealthy open up, become more transparent and show us how they have contributed then
I would stealthily (without warning) introduce a wealth tax and simultaneously close the borders to the
remittance of all money out of the country except for the payment of genuine imports.

by gingerninja | 21st Apr 20, 12:31pm 1587429078

Can anyone think of a recession anywhere where banks lent recklessly? I can only think of occasions when they tightened up on lending.

I was wondering if this is RBNZ trying to put a floor under the Property Investor market (them being the demographic who tend to wreak most havoc in a major recession)?

by waymad | 21st Apr 20, 12:36pm 1587429407

Theoracle's comments above seem to me to indicate that, with Gubmint guarantees, conservative lending policy is under a bus, tire-tracks across its chest, gasping for breath.....

by richard1965 | 21st Apr 20, 1:01pm 1587430874

THIS GOES INTO PROVE THAT ONLY ROCK STAR ECONOMY = HOUSING ECONOMY.

So NZ is in a bubble that will burst sooner than later due to corona virus.

Be prepared.

by Boatman | 21st Apr 20, 12:35pm 1587429325

NO..............NO.....................NO !

Advancing 95% to prop up an over-priced housing market is just the the most stupid thing imaginable

This major correction was a long time coming , and must be allowed to work itself out , as markets always do

The banks are facing a tsunami of mortgagee sales over the next 24 months , why one earth would they give 95% loans to a whole new crop of fools stupid enough to run where angels fear to tread

by Pragmatist | 21st Apr 20, 2:31pm 1587436276

so the banks and the sellers don't book huge losses would be the obvious answer.

by MLSmith1 | 21st Apr 20, 2:58pm 1587437880

They are already booking loss provisions to hide usurious profits in time of carnage in commerce

by streetwise | 21st Apr 20, 12:39pm 1587429566

They should at least defer the relaxation of LVRs until our term deposits have expired so we can remove our money and put it under the mattress where it will be safer than in the bank.

by murray86 | 21st Apr 20, 12:39pm 1587429571

Hidden political agenda? David is correct about investors, and this will likely mean more people are put out of their homes and onto the rental market. The Government, as a part of the COIVID19 reset, must now legislate to put a cap on rents. Under COVID19 the median income will be less, and this cap should be set at 25 - 30% of the median take home pay so say $150 per week for a whole house. This will address poverty on a whole lot of levels and areas, AND cause house prices to fall to an affordable level for FHBs. The Government HAS to stop subsidising landlords!

Not sure I agree with some comments that the banks aren't stupid. Their recent past actions tend to suggest they couldn't see past their own pay packets/egos, so this move might be the result of lobbying from them to give out more cheap money. the consequences a very likely going to be extremely ugly for ordinary kiwis.

by hemihua | 21st Apr 20, 12:48pm 1587430107

It's just stuff up after stuff up for the Reserve Bank. First QE, now this. And we can't even vote them out! I mean we couldn't possibly let record high house prices return to norms now could we. This is a massive '**** you' to the younger generations.

by ShoreThing | 21st Apr 20, 1:08pm 1587431281

They need to be disestablished. I've been saying it for a long time.

by RickStrauss | 21st Apr 20, 2:57pm 1587437864

Absolutely morally corrupt, to transfer wealth from savers to asset holders in such ways.

by Serfdom | 21st Apr 20, 9:00pm 1587459648

My fiance and I are in our 20s. Feels like a raw deal. It doesn't seem like the RBNZ is interested in a level playing field.

by richard1965 | 21st Apr 20, 12:50pm 1587430200

Transperancy.

RBNZ should disclose how and why of their decession and not just hide behind the word Corona Virus.

by Boatman | 21st Apr 20, 12:57pm 1587430665

Yes , AGREED , Mr Orr needs to front up right now , more than ever before

by Foreign buyer | 21st Apr 20, 12:52pm 1587430358

NZ is officially now a banana republic. Only a fool would leave their money with the banks now. The systems collapsing and the muppets are in control. Save your money or they will take it.

by ham n eggs | 21st Apr 20, 2:39pm 1587436783

You cant "save" your money

its only worth anything as long as faith in money holds …

by brisket | 21st Apr 20, 12:54pm 1587430461

Unbelievable. Generational and class warfare that will even further unbalance the ownership of assets towards the haves. Must be sheer panic overcoming their sense and much-vaunted social obligations.

by Boatman | 21st Apr 20, 12:56pm 1587430619

Lets look at this rationally .

If you were to borrow 95% on an average cold -damp breezy Glenfield wooden shack , at an average price of $1,000,000 you need $50,000 in cash .

First off , most Kiwis dont have $50,000 lying around thats spare in a crisis like this .

Secondly . you need a secure income of at least $700 to $900 a week to service that debt ( depending on the term of the loan as well as the deal such as interest only , etc )

Most Kiwis incomes are not at all secure , not even business owners

Or you need a tenant ( with a similar secure income ) to rent it for a similar sum .

Most tenants are looking for a $400 to $550 per week rental , and unless they move the extended family in with them , they cant afford the rent

I am at a loss to understand why the RBNZ has done this .

by Keen Observer | 21st Apr 20, 1:14pm 1587431675

With the move from RBNZ, following my advises: then the answer to that is very obvious that if we heavily reliance on our F.I.RE economy the past 30years - means, only that bar that we need to worry about. Even if another massive earth quake should strike NZ? - the RBNZ is compel as one of the custodian of this type of economy to form reactive action of quick recovery.. now, tell me what is the option in F.I.RE?/Finance Insurance Real Estate - Finance & Insurance shall receive the bail out money, RE? yip.. keep it at flame as the money generated from the flame? shall trickle further to those E/quake recovery - mad/forced economic?

by Yvil | 21st Apr 20, 1:31pm 1587432684

Hi David, I think you have answered your own question:

"Why would the Reserve Bank decide it's up to the banks totally to decide what proportion of high loan to value ratio (LVR) lending they do?"
when you write:
"I would suspect this move to scrap the LVRs for now will mean that house prices don't fall as much as they would"

Indeed large house value drops would exacerbate the upcoming economic hardship

by Glitzy | 21st Apr 20, 1:38pm 1587433115

Nope. It would be a natural reset. Property prices doubled from 2012 to 2018. Nothing wrong with the market reversing that gain and allowing values to revert to an affordable ratio of local income.

by Yvil | 21st Apr 20, 1:50pm 1587433821

What??? My post was about David answering his own question in his article above.

by Averageman | 21st Apr 20, 2:12pm 1587435121

Exactly Mr Glitzy. Artificial doubling about to be corrected.

by Boatman | 21st Apr 20, 2:56pm 1587437775

@Glitzy , thank you for your comment ..........Mr Orr is farting against thunder

If the share market prices have gone back to 2008 levels

And the oil market has gone to zero $ per barrel

And the Bond market is in turmoil with no buyers

And the farmers are ploughing -in their edible crops

And US dairy farmers are pouring milk into the drains due to demand collapsing

Why should the over-inflated housing market receive special treatment , instead of being allowed to bottom out and reset ?

The awful truth for Mr Orr is that whatever he does will be as good as farting against thunder

by Independent_Observer | 21st Apr 20, 3:15pm 1587438948

Thing is that share markets haven't gone anywhere near 2008 levels (yet) due to central bank interventions. But if they do, I don't see how the housing market will be immune to significant falls.

by Squishy | 21st Apr 20, 1:48pm 1587433687

Absolutely every effort must be made to protect house prices even of that means endangering our banking system and what little remains of the rest if the economy.

by Averageman | 21st Apr 20, 2:07pm 1587434867

SARC...

by Ben72 | 21st Apr 20, 1:58pm 1587434291

Negative equity.......
https://www.google.co.nz/amp/s/amp.scmp.com/business/article/3080115/mo…

by FCM | 21st Apr 20, 2:10pm 1587435050

It's ok apparently moving to L3 will now limit the unemployment rate to 10%, we can re train everyone else to be in construction or a doctor or a government worker, within a month or two and away we go. In fact no one ever needs to pay debt back again now we can just borrow until we die, we can even borrow for that event...

by kpnuts | 21st Apr 20, 2:15pm 1587435328

so - banks wont lend to FHB's at 90% in a falling market anyway
therefore this is only for large scale property investors with a significant asset base
meaning RBNZ (government mouthpiece)- agrees houses need owners to look after and provide rentals

Or finally this government has realised that trashing private landlords and property developers is not the best way to improve the quality and quantity of housing stock !

by loganmdonnelly | 26th Apr 20, 9:27am 1587850030

What about FHB's with secure incomes? My wife and I are a teacher/nurse and currently have 12% deposit. This seems like good news to us? Wait 6 months or so and jump in when property price begins to drop?

by fortunr | 21st Apr 20, 2:17pm 1587435465

"At the very least, I would not have removed the limits on investors."
Exactly right - removing limits on investors will stand as one of the most idiotic moves ever done by a Reserve Bank Governor in the history of Western capitalism.

by blobbles | 21st Apr 20, 2:24pm 1587435873

It will be a huge mistake that will increase the fragility of the financial system. I mean it's right there on their website in the menus - Financial Stability - Related - LVR Restrictions. Removing the very restrictions put in place to ensure financial stability, just when the financial system is prone to disruption is like closing your eyes while driving at 100kmph because you are scared of having an accident.

by timbob | 21st Apr 20, 3:38pm 1587440292

Quoted from the RBNZ website - "'Speed limit' is a term that we use in relation to the banks, and the restrictions on the amount of low deposit (high-LVR) lending that the banks can make. There are two high-LVR nationwide speed limits: 20 percent for owner-occupied lending and 5 percent for investor lending."
The LVRs were intended to slow the market, now parts of the market have frozen, closing your eyes while stationary is perfectly fine :-) , losing the LVR just lets the brakes off, I would imagine we'll just start rolling at a walking pace, rather than doing 100.. ! Of course banks will set their own criteria, which are far more stringent than when the LVR controls were first brought in.

by blobbles | 21st Apr 20, 3:41pm 1587440516

I disagree regarding the metaphor. Right now financial systems around the world are going crazy attempting to keep money cycling through real economies, they are going 100kmph. Yes they may hit an occasional stop sign and will change direction, but currently there is no credit freeze, so they have not parked up. What is required is a firm hand at the wheel, guiding them to go in the right direction. What is not required is a driver closing their eyes and hoping for the best.

by timbob | 21st Apr 20, 2:34pm 1587436484

It's just a tweak to improve the functioning of the current market where existing owners buying a more expensive properties are transacting (even during lockdown), but properties at the entry level are in short supply, with first time buyers are limited by finance to buying off the plan apartments and other new builds where the only a 10% or 5% deposit is required. Dropping the LVR just evens up the market making more price ranges of property accessible, allowing people to purchase dwellings which could be over the first home buyer caps throughout the country, but still way more affordable than buying new. In the current environment I would imagine it would not stimulate the market, but keep the market stable at all price levels. The low interest rates probably won't stimulate the market either, but get the market ticking over. It just another indication that the RBNZ is confident that the market sentiment is changing to viewing property as shelter rather than a speculative investment. Anyone that is moving house, or buying because they need somewhere to live long term is still going to buy or transact in the next couple of years.

by Hardly | 21st Apr 20, 2:40pm 1587436820

I agree David about the difficultly of rowing back and I’m not sure of the benefits of a bunch of people borrowing with low equity and even if the banks don’t let them then why remove the LVRs.

by Hummy | 21st Apr 20, 3:14pm 1587438865

What was he thinking?

by Jock Silver | 21st Apr 20, 4:05pm 1587441908

words fail me

by Grant A | 21st Apr 20, 7:04pm 1587452656

Guys - I think you’re over estimating how banks will reaction to this, certainly over the next 2-3 years - they got smacked around in Australia with the Royal Commission, and responsible lending is a big focus for them now believe me. This is the RBNZ’s attempt to get them to loosen the strings that the banks have been tightening in the last 12 months or longer, but I suspect that the RBNZ will be disappointed - I’m not in the slightest worried about this

by Uh Oh | 22nd Apr 20, 9:03am 1587502994

Have they stated a real 'need' to do this? other than propping up banks balance sheets?
Where is the burning house market?
As others have already stated above, they already have reduced reserve ratios what else do banks need... unless their balance sheets are complete garbage

I think they need to slow down and respond appropriately with carefully considered changes,
Rather than impulsively react to every market whim...
Throwing in a another untested tool when you've just made other substantial changes makes it near impossible to gauge the effectiveness of anything.

by Smudge02 | 22nd Apr 20, 12:30pm 1587515457

Covid-19 is something like we have never seen before, and it scares people. Relatively speaking a percentage of the population have lived like kings in recent times, during an era of great excess and consumerism. The thought of that ending or even changing is incomprehensible and they will do anything to protect it at any cost. We can fight Covid-19 but we can't fight human nature.

by MMT Monopoly M… | 23rd Apr 20, 9:38am 1587591529

Reserve Banks are both arsonists and firefighters. Adrian Orr sure seems to be more of a fire bug than a fire fighter!

by loganmdonnelly | 26th Apr 20, 9:29am 1587850146

My wife and I have secure jobs (permanent contracts for teacher/nurse) and currently have about 12% deposit. We have some credit card debt we are paying off currently (original plan was to look at getting a home next year).
This seems like good news to me. Wait 6 months or so and then jump into a property when they drop? With LVR removed the banks should be pretty happy with our deposit + stable income. I'm aware they will keep dropping but they will surely bounce back and this would be a long term live for us anyway.
Am I being naive? What am I missing here