Hive News Friday: Third version of LVRs starting to bite hard on investor lending

Letterboxes outside rental properties. Copyright Lynn Grieveson / Hive News

I love a good Reserve Bank data series and yesterday's batch of figures (C31) on mortgage lending in September show the third round of Loan to Value Ratio (LVR) restrictions are biting hard on lending to landlords.

Lending to investors fell to NZ$1.74 billion in September from NZ$2.01 billion in August. It has fallen from a peak of NZ$2.70 billion in May, which was just before the Reserve Bank announced plans to limit LVRs for landlords to 60% nationwide (ie requiring a 40% deposit). The actual limit didn't apply until October 1, but was introduced almost immediately in practice by banks through June and July. Lending to landlords was also down from NZ$2.24 billion a year ago.

However, lending remained strong for owner-occupiers. That rose to NZ$3.30 billion in September from NZ$3.27 billion in August and was not far below the NZ$3.49 billion seen in September a year ago. Now that house values are over NZ$1 trillion in total, there is a fair amount of equity withdrawal going on as home owners buy new cars and hit big box hardware stores to renovate and refurbish.

Some of the more aspirational tradies and Remuera tractor drivers will also have taken note of this week's biggest news -- the launch by Mercedes Benz of its new X class double cab ute.

In other economic and financial news...

In the wake of the Auckland Council elections, Standard and Poor's affirmed its AA credit rating on the Council's NZ$7.7 billion of debt. It forecast the Council would keep its debt to revenue ratio below 250% (it cannot go over 275% if it wants to keep the rating) and that its interest to revenue ratio would stay at or below 13%.

S&P emphasised the scale of the infrastructure spending ahead of the Council because of rapid population growth. "Auckland still has significant infrastructure requirements (capital expenditure will be 34% of total expenditure between 2015 and 2019) that are difficult to delay without adding to its infrastructure backlog. We therefore expect it to continue to run deficits over the long term, which would weigh on its strong budgetary flexibility," it said, adding any rating upgrade was unlikely over the next two years because of those pressures.

Statistics New Zealand reported New Zealand's trade deficit hit a record high NZ$1.4 billion in September as meat exports fell and Air New Zealand imported a Dreamliner.

Have a great weekend. And look out below for a few longer reads.

cheers

Bernard

28 October 2016