Mortgages

LVR limits will return for investors

The odds of LVR restrictions returning for investors next year are "fairly high" due to the strength of the residential property market, according to economist Tony Alexander.

Friday, October 16th 2020

Tony Alexander

At the end of April, the Reserve Bank scrapped loan-to-value ratio restrictions for owner-occupiers and investors for one year, removing previous LVR "speed limits" on what the banks could lend.

The decision, along with the official cash rate cut in March and vast quantitative easing programme, have boosted the housing market through 2020 in spite of the global pandemic.

Latest REINZ data reveals that 8,377 properties sold nationwide in September – which was a 37.1% year-on-year increase.

Investors have dived back into the market in recent months, borrowing more at high LVRs.

As the housing market continues to heat up, leading economist Tony Alexander believes the central bank will reintroduce LVRs for investors come May next year.

"I think that the chances of the 30% deposit requirement coming back for investors are fairly high given the strength in the residential real estate market," Alexander told landlords.co.nz's sister publication TMM Online.

The outlook may be different for owner-occupiers and first home buyers.

Recent comments from the Reserve Bank indicate it views the recent surge in house prices as helpful to the economy. Officials recently said falling house prices would be the "worst-case scenario" for our economy as it recovers from the Covid recession.

Alexander said the RBNZ may be more inclined to extend the LVR-free period for owner-occupiers.

"Given the bias which the Reserve Bank has toward generating as much momentum as possible in the economy, they may hold off reimposing those requirements for a few months after May. But this far out, it's still fairly much a guessing game," he said.

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