By David Hargreaves
The Reserve Bank’s dropping fairly firm hints that it might be about to start removing the restrictions on high loan to value lending (LVRs), with a decision possibly set to be announced late this month.
The LVR restrictions, one of the RBNZ’s ‘macro-prudential’ tools, fall under the gamut of the bank’s financial stability role.
The bank is due to give its next Financial Stability Report on November 29. The FSRs are generally the forum in which the RBNZ has previously tackled issues relating to the housing market.
Since the RBNZ applied the latest iteration of the LVRs, the 40% deposit limits for housing investors, last year, the housing market has eased considerably, with prices now close to flat.
Prior to the election, both the Labour Party and the National Party had suggested they would like to see the LVRs gone soon.
In releasing its latest Monetary Policy Statement on Thursday, the RBNZ expressed a more confident view than previously that house price pressures would remain off in the foreseeable future.
Acting Governor Grant Spencer suggested that some of the new policies being implemented by the new Government, including Kiwibuild, the expansion of the Bright Line test out to five years, the ban on offshore ownership of existing houses and the upcoming taxation review, would help to keep investor demand for housing at a moderate level.
“We are projecting house price inflation to stay quite low.”
Asked at the media conference, after the release of the MPS, whether the RBNZ was therefore now considering lifting the LVR restrictions, Spencer said: “We are certainly reviewing the restrictions and the criteria that we would adopt for their removal.
“We’ll be saying more about that at our Financial Stability Review, which is in a couple of weeks. We’ll talk a little bit more about the LVRs and those criteria at that point.”
Asked further whether this meant the restrictions might be lifted in the next year or two, Spencer said:
“When we introduced them we certainly said that these were a temporary measure and at some point we would look to remove them, so, that’s right.
“But, I think it’s also fair to say if we are looking to remove them that wouldn’t be done in one hit; it would be a gradual more cautious approach.”
Spencer was also asked about debt to income ratios. These are something that the RBNZ has been trying to get included in its ‘macro-prudential toolkit’ although it has stressed it would not use them at the moment.
Previous Finance Minister Steven Joyce effectively kicked the issue into touch till after the election by getting the RBNZ to run public consultation on DTIs ahead of getting ministerial approval.
“We’ve had a consultation as you know,” Spencer said.
“There are a few issues that are raised in that consultation about how we would make such a [DTI] policy work.
“We still think that it makes sense to have some sort of macro-prudential debt service tool in the macro-prudential toolkit but at this stage we are planning to sort of wind-in that issue into the macro-prudential review, which we are conducting jointly with Treasury over the coming several months.
“Certainly given the conditions in the housing market we are not looking to introduce any new macro-prudential tools. But we think from a long term point of view it is still makes sense to have an instrument of that sort and we will be considering it in the review.”
Asked whether the RBNZ might look to replace LVR limits with DTIs, Spencer replied:
“I think that’s unlikely.”