The Reserve Bank announced last week that it will be lifting its value ratio restrictions for 12 months with hopes to keep lending and investing afloat in the post COVID-19 economy. This announcement comes as figures revealed that lending hit a four year high in March, just before the lockdown, with first-time buyers borrowing a significant chunk. Here’s what you need to know: Reserve Bank lifts LVR restrictions The Reserve Bank announced last week that restrictions on mortgage lending will be lifted for at least 12 months, after consultations on whether to ease loan to value ratio (LVR) restrictions in response to the COVID-19 pandemic.
The Reserve Bank’s head of financial stability Geoff Bascand addressed concerns about risky lending, stating that it was outweighed by worries that banks will be too reluctant to lend, “Given the current uncertainty around the economic outlook, the Reserve Bank considers that it is unlikely that banks will weaken lending standards to high risk borrowers.”
The changes came into effect last Friday after a short consultation period in which the bank received “more than 70” submissions from the public and industry, as well as approaching non-government groups seeking feedback.
Bascand stated that all New Zealand incorporated banks which responded to the consultation were in favour of removing the restrictions, and that banks would monitor lending over the next 12 months as the economic impact of COVID-19 became clearer. “We will review the most appropriate setting for LVRs in a year’s time.” Mortgage Lending Hit Record High Before Lockdown New Reserve Bank residential mortgage lending by borrower type figures has revealed that banks advanced the biggest amount for mortgages in a March last month since 2016, and that first home buyers had a pre-lockdown surge in lending.
Over $6 billion was advanced by the banks in March and that was the highest tally for a March month since 2016 at the height of the boom, with first home buyers were also in full force, borrowing well over $1 billion, after a slight dip in lending in February.
Many experts are hoping that the trend of first-time buyers investing in the residential property market will continue in a post-lockdown economy, with many expecting major drops in LVR restrictions and low mortgage rates will be attractive incentives for first-time buyers.
These measures may also entice investors back into the residential property market as uncertainty around the commercial property market increases as the effects of COVID-19 hit business and rents.
-Ravi Mehta