LVRs have played a key part in getting house prices under control. Photo / File
LVRs have played a key part in getting house prices under control. Photo / File
The Reserve Bank has made the right call leaving its Loan to Value Ratio (LVR) restrictions unchanged in its latest Financial Stability review this morning.
It means restrictions requiring most first-home buyers to have a 20 per cent deposit and most investors to have a 30 per cent deposit willstay in place.
That probably sounds like bad news for first-home buyers - but it isn't. It's good news.
The LVRs hit many young people hard when they were first introduced in 2013 by doubling the size of the deposit most required per cent, but over time they've played a key part in getting house prices under control.
The data shows the percentage of first-home buyers coming into the market is now on the rise.
Lending to first-time buyers in the first nine months of this year was 12.2 per cent higher than in the first nine months of 2018, according to RBNZ figures.
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For the same period, lending to investors fell 16.4 per cent.
That's in part because LVR rules are now tougher for investors - most need a 30 per cent deposit - than they are for first-home buyers.
The attitude of the big Aussie banks to risk has also changed a lot since the LVRs were introduced.
They are now a lot more cautious about lending by choice.
So even if the Reserve Bank dropped the restrictions completely, it seems unlikely they'd be rushing to lend more than 20 per cent of their loan book (the current limit) to young people with less than a 20 per cent deposit.
Investors, however, would probably be a safer bet as more of them have extra collateral in the form of at least one other property.
A surge in property investors would almost certainly push prices higher and crowd out first-home buyers.
It's not like it has suddenly become easy for young people to get into the property market but it has stopped it getting a lot worse and that is crucial.
It at least gives people a stable target for saving their deposit. When house prices are rising at a double-digit rate, the size of the deposit required is also constantly accelerating into the distance.
Technically, it's not the Reserve Bank's job to worry about fairness in the housing market at an individual level.
It takes a bird's eye view of New Zealand's debt profile and assessing its financial risk.
But under current Governor Adrian Orr, and his predecessor Graeme Wheeler, the Bank has talked about the precarious positions first-home buyers can find themselves in if they are extremely highly leveraged.
From that big-picture point of view, things have improved a little.
It's good news that the Reserve Bank's data continues to show the slowing rate at which New Zealand's debt mountain is growing.
The Reserve Bank this morning noted that credit growth had stabilised - largely following the trend for a cooler housing market.
But it's not getting any smaller either and the reality is New Zealand's vulnerability to a global debt crisis remains largely unchanged.
And while the situation is relatively stable here, it looks increasingly precarious on the international front.
Global growth is slowing as world trade declines. Meanwhile, stockmarkets around the world continue to run hot.
Current monetary policy settings (i.e. lower interest rates) are providing some short-term relief in the financial system.
Reserve Bank Governor Adrian Orr has left LVR rules in place warning that risks remain. Photo / Mark Mitchell
That's the case all over the world right now.
The Reserve Bank has been open and honest in its assessment that its own low rate settings may actually drive more financial risk long term.
In other words, it still looks like a good time to borrow money. Which could become a problem if economic conditions change fast.
As much as we seem to love to grumble and worry about the slowing rate of economic growth right now, it is vital that we recognise this period of financial and economic calm for what it is - an opportunity.
It provides a rare window for those with high debt to tackle it.
It will also provide an opportunity for some to borrow and invest - but where that's the case it should be done wisely, with an understanding that low interest rates may not last forever.
