Opinion: Loan-value ratio appears to be working

In July, ANZ chief executive David Hisco joined a growing list of conservative establishment figures calling for more urgent action on the issue. PHOTO/FILE

There was much speculation about the potential impact of the new loan-to-value ratios (LVR) when they were announced earlier this year.

Some questioned whether the ratios set by the Reserve Bank, which require investors to have at least a 40 per cent deposit to buy a house, would cool the country's property market and make it easier for first-home buyers to get on the property ladder.

Others said that limiting investor influence would reduce the pool of rental properties and push up the price of rentals. This is a genuine concern because the cost of rentals has been rising sharply. Families have been forced to sleep in cars because they have been unable to find an affordable house to rent.

The early signs are that the LVR is being felt.

The Bay of Plenty Times this week reported that the bottom end of the market is sluggish with the LVRs seems as a major factor influencing the trend.

Eves and Bayleys Real Estate chief executive Ross Stanway says while there has been an upsurge in market activity for homes priced above $700,000 sales in the $450,000 to $500,00 bracket has dropped off.

The trend provides a ray of hope to first-home buyers who have faced stiff competition from investors.

They still have a big hill to climb. For many the task of saving a deposit will seem insurmountable. Latest QV figures show Tauranga house prices have risen 26.5 per cent in the past year. The average value of a house in Tauranga last month was $665,155.

Saving a 20 per cent deposit represents a major challenge for young people but at least they now they are facing less competition from investors.

The extent of this competition was revealed last year when the Reserve Bank revealed that banks were making three times as many loans to investors as they were to first-home buyers.

While it appears to be too early to say whether the new rules have affected the rental market, in my view, the loan-to-value ratio rules were needed to reduce the heat in the housing market and the risk, if left unchecked, this could present to the wider economy.

Many think more needs to be done.

In July, ANZ chief executive David Hisco joined a growing list of conservative establishment figures calling for more urgent action on the issue.

He noted that housing markets could go backwards and raised the point salaries and wages have hardly changed while house prices have risen, "this can't continue so it's a matter of when, not if, the market adjusts", he wrote.

He called for the LVR restrictions to be raised to 60 per cent for investors, for a review of immigration because Auckland's housing, roads and public transport were struggling to cope, for the New Zealand dollar to be weakened, for voluntary tightening of lending criteria by banks and for a focus on building infrastructure.

The Bay economy, and the country as a whole, is enjoying a prolonged period of prosperity. We all want that to continue so it's important that these issues are addressed so that the housing market, particularly in Auckland, does not threaten it.

It's worth noting that it was seen as almost unprecedented for a banker such as Hisco to call for stronger regulation than had been prescribed. Hopefully those who hold influence over such matters were listening.