Finance Minister Grant Robertson is hopeful the Reserve Bank will ease restrictions on Loan To Value Ratios for first home buyers, in part because other measures being taken by the Government to take pressure off house prices could give the regulator room to breathe easier.
The Reserve Bank is scheduled to release its half yearly Financial Stability Report (FSR) at 9 am tomorrow and hold a news conference later in the morning. Current Governor Grant Spencer said earlier this month he would talk more about the criteria to remove the restrictions at the FSR.
Robertson, who is already likely to have been briefed on the FSR, was asked about the future of the LVRs at a stand-up news conference before the Labour Caucus meeting. He pointed to the Government's plans to restrict foreign buying, remove negative gearing for landlords and extend the two year bright line capital gains test for property traders as factors that may give the bank room to move, although he cautioned the bank was independent and would make its own decision.
"Some of the initiatives that we are bringing in on the demand side will take some time to come into force, but no doubt the bank will have something to say about that tomorrow," Robertson said.
Asked if it was time for the LVRs to be removed, he said: "From the beginning we have been concerned about the impact of LVRs on first home buyers. Obviously we have seen some change in the balance of the housing market between investors and first home buyers. We want to do everything we can to support first home buyers in. That remains our chief concern with the implementation of LVRs."
The Reserve Bank initially imposed restrictions on LVRs across the board in 2013, meaning rental property investors, people moving from one home to another and first home buyers were all subject to a tight speed limit on the proportion of lending done with LVRs of over 80 percent.
In 2015 the Reserve Bank limited lending to rental property investors in Auckland at LVRs above 70 percent, but left the across-the-board restriction in place elsewhere. That led to complaints in the first three years of the policy that first home buyers were hit with the same blunt instrument and were left at a disadvantage because rental property investors invariably had much more equity to 'spend' because of property price inflation for previous properties they had owned.
But in 2016 the Reserve Bank applied a restriction that no more than five percent of lending to rental property investors across the country would be able to be done with LVRs of more than 60 percent. That effectively restricted rental property investors more than first home buyers and existing home movers, redressing the imbalance somewhat.
Robertson was then asked if the various Government measures would add too much downward pressure on the housing market at a time that house prices are flattening and falling.
"That will be exactly the kind of issue that the Reserve Bank governor will take into account. We do have a number of measures designed to clamp down on speculation. We also have to get the creation of and the building of houses on the supply side done. So that will take a little bit of time, but I am sure that the Resreve Bank Governor will be well aware of the measures we have," he said.
Asked if the extra demand and supply side measures meant the Reserve Bank would not need restrictions on LVR buyers, he said: "Well, that’s right. We’ve always been concerned about them hurting first home buyers. But this is an independent decision for the bank to make. They will be well aware that we have a number of measures to crack down on speculation and stimulate supply. The issue is: they take a little bit of time to come on stream and have effect."
Asked about figures showing first home buyers nationwide were increasing their share of buying, Robertson said: "They are doing better, they are doing much better. But we still need to dramatically increase the supply of affordable homes for them."
Robertson added he had never favoured debt to income ratios.
Back on November 10, Spencer said the FSR would be an opportunity to revisit the area of the LVRs, which the bank has always said were temporary.
"We're certainly reviewing the LVR restrictions and the criteria that we would adopt for their removal and we'll be saying more about that at our FSR in a couple of weeks," Spencer said when asked if the LVRs would be relaxed and if a debt to income multiple tool might be adopted.
"We've had a consultation on the DTIs and there were a few issues that were raised in that consultation about how we would make that policy work. We still think it makes sense to have some sort of debt service tool in the macro-prudential tool kit, but at this stage we're planning to wind in that issue into the Macro-Prudential review which we're conducting with Treasury over the coming several months," he said then.
"Given the conditions in the housing market, we're not looking to introduce any macro-prudential tools, but from a long term point of view it still makes sense have an instrument of that sort and we'll be considering it in the review."
Spencer said on November 10 that any changes would be gradual and cautious.
"When we introduced them we certainly said these were a temporary measure and at some point we would look to remove them, but if we're looking to remove them that wouldn't be done in one hit. It would be a gradual, more cautious approach," he said then.
He said it was unlikely that the LVRs would be replaced by a DTI tool.