LVR limits killing off NZ market segments

Marlborough-based mortgage broker and financial planner Paul Fuller told Mortgage Business the central bank’s LVR restrictions have slowed the housing market and subdued values.

Implemented last October by the Reserve Bank of New Zealand (RBNZ), the restrictions prohibit banks from issuing more than 10 per cent of new residential loans to customers who have an LVR of more than 80 per cent.

“People are being trapped by not being able to sell because when they sell and pay real estate fees they don’t come out with enough equity to actually buy another house,” Mr Fuller said.

“That has become a problem of its own,” he said.

High-LVR mortgage lending has fallen from between 25 per cent or 30 per cent of the banks' new book to less than 5 per cent, according to AllianceBerstein senior economist for the Asia Pacific, Guy Bruten.

“Nationwide housing transactions are down by around 13 per cent since the restrictions' introduction,” Mr Bruten said.

“First home buyers have been effectively shut out of the market.”

However, the banks are beginning to ease up on lending, Mr Fuller told Mortgage Business.

“We are now seven months into the new restrictions and we are seeing the banks starting to ease some of the lending criteria above 80 per cent because they’ve got a handle on their lending limits,” he said.

“All the pre-approvals that they had out initially have all expired and the banks are getting a better management of their loan books.”

The RBNZ raised the official cash rate by 25 basis points to 2.75 per cent on March 13, the first increase in three years.

Rates were hiked further to 3 per cent today.