LVRs back for first home buyers, investors

Grant Robertson says the Government planned to "tilt the balance" toward first home buyers and...
Grant Robertson says the Government planned to "tilt the balance" toward first home buyers and wanted to incentivise new builds. Photo: Getty Images
The Reserve Bank has confirmed it will re-impose loan to value ratios from March 1 at 20% for first home buyers and 30% for property investors.

From May 1 investors will have a 40% LVR limit. The central banks said it is concerned about the risk a sharp housing correction could have on financial stability.

The move comes as Finance Minister Grant Robertson this morning signalled a crackdown on property speculators with proposals to curb house price inflation going before Cabinet shortly.

RBNZ deputy governor Geoff Bascand said this morning there was evidence of speculation and growth in heavily indebted people, which would threaten financial stability if there was a sharp housing downturn.

LVRs were suspended at the start of the pandemic to ease the pressure on banks.

"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 being set for the national median price, and new mortgage lending continuing at a strong pace," Bascand said.

"We are now concerned about the risk a sharp correction in the housing market poses for financial stability. There is evidence of a speculative dynamic emerging with many buyers becoming highly leveraged."

A growing number of highly indebted borrowers, especially investors, were now financially vulnerable to house price corrections and disruptions to their ability to service the debt, he said.

"Highly leveraged property owners, in particular investors, are more prone to rapid 'fire sales' that potentially amplify any downturn."

The RBNZ has long said its concerns are for the health of the banking system and not necessarily aimed at cooling the housing market or bringing down house prices.

However, previous research showed house prices eased by 3-6% when the LVRs were in operation, slowing the rate of price rises.

Latest data from Quotable Value showed annual house price growth of nearly 13% in 2020, with the average national house price sitting at $838,826.

Govt moves to address housing crisis 

Speaking at the release of the Budget Policy Statement this morning, Finance Minister Grant Robertson said as foreshadowed in January, the Government will announce a rolling series of measures to build on what it did last term to address the crisis in housing.

"The first of those will be on the demand side measures which will come in late February. We all know that building more houses, particularly affordable houses, is critical. But we also can do more to manage demand, particularly from those who are speculating."

He said advice from Treasury and the Reserve Bank had been taken on the matter.

Robertson said the Government planned to "tilt the balance" toward first home buyers and wanted to incentivise new builds.

"As the Prime Minister has outlined, we will also make more announcements on the supply side as Budget 2021 is finalised. These will build on the government's housing programme that has seen us build more houses than any government since the 1970s.

"Anyone who tries to tell you that there is a single silver bullet for addressing the housing crisis is not facing reality - or is speaking from the safety of Opposition.

Robertson said Budget 2021 would also focus on keeping Covid-19 out of the country, continuing to recover from the lockdown, climate change and child poverty. He also indicated targeted, prioritised spending.

"The significant resources we have put into the recovery and rebuild will be supplemented by further investment over coming Budgets, but quite clearly we need to strike a balance with rebuilding and maintaining a strong fiscal position.

"This includes rigorously assessing all of the spending that was provided for in the Covid Response and Recovery Fund. As the economy has rebounded stronger-than-expected, we are taking the opportunity to assess if money can be better targeted or reprioritised where it has not already been used."

Wellbeing objectives for the Budget included lifting Māori and Pacific incomes, skills and opportunities, and combating the impacts of the pandemic.

Comments

So the answer to our overvalued houses, is to just make it harder for people to buy them? Well, perhaps this will eventually lead to a slight reduction in the medium price - but what happens when immigration returns and interest rates drop even more? How about restricting the number of houses investors can buy, to maybe 3 or 4, and bringing in a more broader Capital Gains Tax? The only people really suffering and missing out here are the poorer, desperate first home buyers.