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.
157 Comments
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.
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.
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.
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.
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.
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.
This one not good enough for you? https://www.realestate.co.nz/3751722/residential/sale/9a-crispe-road-cl…
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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!!
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…
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
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.
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.
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!
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.
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.
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?
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.
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....
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.
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
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.
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.
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!
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.
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)?
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
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.
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 .
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?
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
@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
Negative equity.......
https://www.google.co.nz/amp/s/amp.scmp.com/business/article/3080115/mo…
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...
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 !
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.
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.
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.
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.
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
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.
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.
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
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