Lending restrictions won't be needed soon, finance minister says

Finance Minister Grant Robertson says once the government's housing policies start to take effect, there will be no need for LVR restrictions.

Grant Robertson’s comments come on the eve of the Reserve Bank’s financial stability report – when some economists are expecting the central bank’s acting governor to announce changes to the LVR settings.

Although he’s adamant it’s the Reserve Bank’s decision, he says acting governor Grant Spencer will be “well aware we have a number of measures to crack down on speculation and increase supply.

“Some of the initiatives we’re bringing in on the demand side will take a little bit of time to come into force but no doubt the bank will have something to say about that tomorrow,” he says.

Labour has always been worried about the impact of LVR’s on first home buyers, he says.

First home buyers “are doing better” when it comes to getting into homes – “but we still need to dramatically increase the supply of affordable homes for them.”

Mr Robertson also admits there has “certainly [been] some softening in the housing market” over the last year.

The most recent Real Estate Institute figures show the median prices in the Auckland region fell by 3.2% year on year to $850,000 – the biggest fall since December 2010.

LVRs were introduced by the Reserve Bank in 2013 and at the time, meant home buyers would need at least a 10% deposit to get a mortgage. In 2015, the restrictions were tightened, which meant residential property investors in Auckland were required to have a 30% deposit. The next year that was bumped up to 40%.

The lending restrictions were aimed at cooling the heated housing market.

Meanwhile, National’s finance spokesman Steven Joyce says now is the “right time” for the Reserve Bank to start thinking about the conditions under which it would ease LVRs.

He says it’s his understanding it’s the central bank’s intention to do just that this week.

Opposition leader Bill English, who has in the past indicated a similar stance, says it’s up to the Reserve Bank whether the LVRs should be removed.

“The whole point of the LVRs was to prevent risk to the system from too many people borrowing at very high ratios of the value of the houses.

“The bank is the ultimate supervisor of the risk – if they think in the future the risks are a bit lower, then they can change it.”

Reserve Bank ‘likely’ to begin easing LVR restrictions
At the November Monetary Policy Statement, the Reserve Bank noted: “Low house price inflation is expected to continue, reinforced by new government policies on housing.”

In an ASB Bank note this week, chief economist Nick Tuffley said these comments appear to show the bank is less concerned by a risk of house price resurgence.

“This suggests, once the new government’s housing policies are firmly in place, the Reserve Bank will likely begin to gradually relax the LVR lending restrictions.”

Mr Spencer has signalled the Reserve Bank is to lay out the process of how it will unwind LVR restrictions when it delivers the financial stability report.