If there was ever any doubt about the independence of the New Zealand Reserve Bank, there shouldn’t be any more. Not after it faced down the government and refused to allow a first home buyer exemption for its new restrictive loan-to-value ratios (LVR) on residential lending.
Effective from 1 October, 90% of a bank’s portfolio of home loans (both made and approved) must have an LVR of 80% or less, meaning that home buyers will have to front up with 20% of the purchase price.
- wealth loss effects as the lending limits prevent home buyers from undertaking value-enhancing renovations or undertaking necessary repairs to retain or return value to their property
- loss of mobility in the banking sector for low income earners and mortgagees with high LVR loans as the banks, which have traditionally offered them incentives to move, are now reluctant to take them on as customers
- pressure on property developers at the lower end of the market to leave more equity in their developments so that potential buyers can meet the 20% deposit on their mortgage, and
- emergence of an as yet unregulated secondary market where non-bank lenders provide more expensive 90%+ LVR loans to people who then refinance to lower cost bank loans once they can show they’ve accrued 20% in equity value.