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Time to further soften LVRs, says realty head

Time to further soften LVRs, says realty head

“It’s time for the Reserve Bank to look at further softening its loan-to-value ratios, particularly for Auckland first-home buyers,” says Geoff Barnett, National Manager of Century 21 New Zealand.

His call follows REINZ’s release of January’s real estate data, as well as QV’s latest House Price Index showing that the Auckland market has normalised over the past year, with commentators noting that RBNZ’s higher deposit requirements have had their expected effect on Auckland.

“The LVRs were introduced a few years ago to help cool what was a crazy Auckland housing market, and they have worked. A review on the LVR restrictions now needs to happen as too many Auckland first-home buyers are missing out because of this outdated measure,” says Mr Barnett.

“With rents still rising, for many securing a low interest rate now and buying would be a better option. But with most still needing a 20 percent deposit, it’s impossible for many. In fact for Auckland first-home buyers looking at the average priced house, the required deposit would be around $200,000!”

Mr Barnett acknowledges that LVR restrictions have been softened somewhat since 1 January but says with much of the heat now officially out of the Auckland market, the RBNZ needs to look at further easing.

From 1 January RBNZ undertook a modest easing of the restrictions. No more than 15 percent (was 10 percent) of each bank’s new mortgage lending to owner occupiers can be at LVRs of more than 80 percent. While no more than five percent of each bank’s new mortgage lending to residential property investors can be at LVRs of more than 65 percent (was 60 percent).

“I agree with QV that continual surging rents will likely motivate renters to enter the housing market, but what will enable them to do just that is reducing the required deposit.”

“Like many others, I would actually like to see the Reserve Bank make first-home buyers totally exempt from such blanket high deposit requirements, much like new builds are. Of course, they should still pay a deposit and their savings history and ability to service the mortgage must still be heavily scrutinised. However, such an exemption is unlikely to happen in the short-term. Nonetheless it’s time first-home buyers got a fairer go.

“My concern is not with investors as they can mostly structure their business and lending to make it work. It’s young Aucklanders the RBNZ needs to consider. They should be able to take advantage of the low interest rates while they last, but they can’t even get out of the starting blocks because of one big blunt tool that Auckland no longer even needs,” says Mr Barnett.

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