It’s official – the announcement of limitations on high LVR lending finally came on Wednesday. Unless you have been living under a rock, you likely have been aware that this announcement has been expected for some time now. That said, the finalized restrictions are certainly tougher than expected by most.
The Expectation
That approximately 12% of future lending would be able to have a high LVR value, as was informally indicated by the Reserve Bank in June of this year.
The Reality
Only ten percent of lending at high LVR rates will be allowed, which has left banks- and potential mortgagees- fuming.
Thev Expectation
Overly optimistic or no, some financial commentators seemed to anticipate these new restrictions being implemented in November or December.
The Reality
These policies will apply from October 1st- much earlier than some estimates.
The Ray of Sunshine: We should consider ourselves somewhat lucky that we have had this much advance warning- previous Reserve Bank announcements indicated less than 2 weeks warning would be given! At least this way you have time on your side if you decide to try to ‘get in there quick’ before these new restrictions are imposed.
However, amid all the RBNZ’s touted promises, there are serious criticisms coming from a host of financial commentators- each proclaiming that these LVR tools are deluded, inefficient, or simply overoptimistic in some way or another.
But will these measures live up to the RBNZ’s aspirations?
The Expectation
The RBNZ has maintained that these measures will reduce demand in the currently oversaturated property market.
The Counter-argument
Some spectators are arguing that the current burgeoning market is being driven by investors- who tend to have the 20% or more deposit, and therefore won’t be affected by these measures. Instead, critics claim, the only ones who’ll be left in the cold are those looking to enter the housing market for the first time.
The Expectation
That with less high LVR mortgagees in the market, New Zealander’s debt will be much more sustainable.
The Counter-argument
It’s the larger banks that are affected by these restrictions. The smaller or less reputable lenders will be able to make a tidy profit from issuing high LVR loans to the desperate who can’t compete for business with the major banks. The problem? Loan sharks will be the ones profiting off of this, and New Zealanders debt will be even less secure than if these measures weren’t in place.
But if these measures are arguably, so risky… what are the alternatives?
The main alternative is the raising of the interest rate, according to some analysts. However with this also comes major risk- including to our economy as it makes exports less competitive in the foreign market. Despite this, these critics claim that the raising of interest rates is inevitable when the current measures prove futile, and this delay in doing so will only exacerbate the housing market conundrum further.
The bottom Line
Only time will tell whether these restrictions will be the ‘quick fix’ that the Reserve Bank has intended. Regardless, if you are a potential high LVR mortgagee (especially without good financial credentials) it might be worth trying to get a loan while you still can. Conversely – if you are a investor it may be worth waiting until after October 1st to talk to a Mortgage Broker like us, as you may find yourself a high-priority customer with banks.
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