‘This is not a green light’
The Reserve Bank thinks a slight loosening of LVR restrictions won't cause the market to boom, and the Government's moves on investors and housing supply won't cause it to tank.
Reserve Bank Governor Grant Spencer was at pains yesterday to portray his slight relaxation of Loan to Value Ratio restrictions as no 'green light' for home buyers and bankers to jump back into a market about to boom again.
Spencer was speaking to MPs in the Finance and Expenditure Select Committee after he announced the bank would loosen LVR restrictions on owner-occupiers and landlords just slightly from January 1.
Asked by new Labour MP Deborah Russell what signal he was sending to investors about the housing market, he said: "We certainly don’t want to give the signal that it is some sort of green light that the housing market is back on."
"The signal is more that our expectation is that the housing market is going to remain flat and is not about to resurge again, but there is a little bit more room for high LVR loans, and a lot of that would be taken by first home buyers," he said.
"It is more a toe in the water signal and comment that this is not major event that is really going to impact the market. "
Earlier the bank announced that 15 percent of loans to owner occupiers could be done with deposits of less than 20 percent, which was up from the previous 'speed limit' of 10 percent. It also cut the deposit requirement for landlords to 35 percent from 40 percent, but left the speed limit for this lending at just five percent.
Asked by former Finance Minister Steven Joyce if the Reserve Bank's continued restrictions and the new Government's actions would cause a downward correction in the housing market, Spencer said he thought the various measures would only have a small impact.
"We don’t own or control the housing market. We have an impact at the margin," Spencer said.
"In terms of a risk of a downward correction, we think that is a low probability because of the underlying housing shortage that we think still persists, particularly in Auckland," he said.
A lot of the moderation had come from the investor side of the market, where buying and lending had come off at the same time as a change in sentiment from these types of buyers, he said.
"A lot of these policies are affecting the potential return of investors. So in some areas there may be more sales of investor property than purchases. So I think it is very clearly a dampening factor on the investor side, but on the other side (owner occupier) you still have a shortage.
"There are still people coming into the country and not enough houses being built to close that gap. So in that sense I think as long as that fundamental shortage exists I think it is very unlikely you have any real risk of the tanking of the housing market."
The Reserve Bank did not give a time frame for relaxing the rest of the LVRs and described the relaxation of the deposit limit for landlords from 40 percent to 35 percent from January 1 as only moderate.
"The Reserve Bank estimates that around half of investor loans were being originated at LVRs above 70 percent immediately prior to the introduction of the LVR restrictions in 2013," it said in the half-yearly Financial Stability Report.
It said the criteria for further relaxation was evidence that house price inflation and credit growth had fallen to around the rate of household income growth, which was currently around five percent. It noted that household credit growth was easing, but remained above income growth.
"Gradual adjustment to policy will reduce the risk of resurgence in the housing market and a deterioration in lending standards," the bank said.