House prices: Reserve Bank hits continue on tough new loan-to-value ratios, warns of housing correction


Business

Frances Cook and OneRoof’s Need to Know series set the record straight for the home loan process.

The Reserve Bank has warned that the overheated real estate market is increasingly at risk of a correction and that it will reintroduce loan-to-value (LVR) rules at the stricter end of expectations.

The rules mean that most investors will need to have a 30% deposit starting in March, but that will drop to 40% starting in May.

Most other homeowner buyers will require a 20% deposit.

LVR restrictions were removed in April 2020 to ensure they did not interfere with Covid-19 policy responses aimed at promoting cash flow and confidence.

“Since then, in part due to the success of the health and economic policy responses, we have witnessed a rapid acceleration in the housing market, with new records for the national median price, and new mortgages continuing at a steady pace. , “said Deputy Governor of the Reserve Bank and Chief Financial Officer Geoff Bascand.

“We are now concerned about the risk that a sharp correction in the housing market poses to financial stability. There is evidence of the emergence of a speculative dynamic, with many buyers becoming heavily in debt.

“A growing number of heavily indebted borrowers, especially investors, are now financially vulnerable to house price corrections and disruptions in their ability to service debt. amplify any slowdown.

As a first step, from March 1, LVR restrictions will be restored to the same level as before the start of Covid-19.

But a further tightening of restrictions on investors takes effect on May 1.

The two-step process was necessary to take into account the operational capacities of the banks.

From March 1, 2021:

• Homeowner LVR restrictions will be restored to a maximum of 20 percent of new loans with LVRs above 80 percent.

• LVR restrictions for investors will be restored to a maximum of 5 percent of new loans with LVRs above 70 percent.

From May 1, 2021:

• LVR restrictions for owner-occupiers will remain at a maximum of 20 percent of new loans with LVRs above 80 percent.

• LVR restrictions for investors will be further increased to a maximum of 5 percent of new loans with LVRs above 60 percent.

In a speech this morning, Finance Minister Grant Robertson also warned that new government measures will chill the housing market.

“There is a crisis in the housing situation right now in New Zealand,” he said.

Robertson said the government plans to “tip the balance” in favor of first-time homebuyers and wants to encourage new construction.

National house prices set records for the fourth consecutive month in December, according to the Real Estate Institute.

National house prices could increase by 13-16% in the coming months,
say economists.

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