With a housing boom showing no signs of abating across the Tasman, the Reserve Bank of New Zealand has announced it will bring forward the re-introduction of LVR controls. But its decision to hold off doing so until March (two months ahead of schedule) combined with its plans for a ‘funding for lending’ programme of up to NZ$28 billion, means house prices are likely to only soar higher over summer.
House sales in New Zealand boomed to over NZ$3.5 billion in September, including nearly NZ$2.5 billion of fresh loans and about $1 billion of equity stored up by owner-occupiers and rental property investors.
The RBNZ suspended its loan to value ratio restrictions from May this year for 12 months in response to the COVID pandemic, concerned they could have “an undue impact on borrowers or lenders” when combined with the mortgage deferral scheme.
Yesterday it said it would consult next month on re-introducing LVR controls for risky lenders from March 1, rather than the May 1 deadline. This surprised many, as the Reserve Bank was not expected to comment or take action until its Financial Stability Report on November 25.
The Bank did not specify whether the LVR controls would be brought back only for rental property investors, or whether they would also apply to first home buyers, who are increasingly being forced out of the Kiwi housing market.
To placate the banks who will have to cool their lending, the RBNZ also announced it has delayed its plans to force them increase their capital levels for another year until July 2022. It will release more details on November 17.
However, it has kept its dividend ban for the banks in place until next March at the earliest. RBNZ Governor Adrian Orr also warned the big Australian insurers, IAG and Suncorp, against paying dividends.
Orr also announced that a Funding for Lending Programme (FLP) of up to NZ$28 million, to pump out money for the banks to lend out cheaply, will start next month. More details of the scheme are expected in “coming weeks”.
The already low OCR of 0.25 per cent that has fired up the housing market is likely to drop further, although the RBNZ indicated it would be unlikely to change before March. But the Bank is keeping its options open on the possibility of taking the OCR negative next year.