In response to the growing housing market risk in Auckland, the Reserve Bank is today announcing proposed changes to the loan-to-value ratio (LVR) policy. The policy changes, proposed to take effect from 1 October, will:
- Require residential property investors in the Auckland Council area using bank loans to have a deposit of at least 30 percent.
- Increase the existing speed limit for high LVR borrowing outside of Auckland from 10 to 15 percent, to reflect the more subdued housing market conditions outside of Auckland.
Retain the existing 10 percent speed limit for loans to owner-occupiers in Auckland at LVRs of greater than 80 percent.
So the new rules will be:
- 100% of property investors in Auckland will need at least a 30% deposit to buy property
- 85% (was 90%) of home buyers outside Auckland will need at least a 20% deposit to buy a property
- 90% of non investor home buyers in Auckland will need at least a 20% deposit to buy a property
I think the changes are sensible and better targeted. Those outside Auckland will find it easier to get a mortgage. Non-investors in Auckland will have no change (or may find it slightly easier as investors will find it harder), and property investors in Auckland will not be able to get financing unless they can cover 30% from their own reserves.
The Reserve Bank is consulting on its proposal, and if they proceed, will implement them on 1 October.
Mr Wheeler said the Bank thought that the moves would reduce the number of property transactions in Auckland by 8 – 10% and possibly reduce house price inflation by 2 – 4% “MAYBE EVEN MORE THAN THAT”.
Conversely the moves would give a slight boost to the property market outside Auckland and Mr Wheeler estimated that sales there could pick up by about 4% and “maybe house price inflation by about one per cent.”
The RB move won’t solve the fundamental issue of not enough land in Auckland has been made available for housing, but it will help.