However, some are uncertain if it would change lending behaviour
The Reserve Bank of New Zealand (RBNZ) has decided to axe loan-to-value ratio (LVR) restrictions as part of its mortgage deferral scheme implemented in response to the COVID-19 pandemic. Advisers welcomed the decision, although some were unsure whether it would change lending behaviour.
Some advisers claimed that the decision would help banks’ risk appetite, while others predicted that that lending would remain tight.
Charles Spilhaus, an authorised financial adviser at Steve Sale Insurance & Mortgages, commented that the central bank’s decision would affect banks’ lending assessment, and the difference between owner-occupied and non-owner-occupied “will essentially be lost.”
“[It] will facilitate more lending for various purposes whether for business or investment or up-trading of owner-occupied property or consumer purposes,” Spilhaus told Good Returns.
In contrast, an adviser said the removal of LVR restrictions might not make a difference as banks continue to test people at 7% to 8% rate for servicing loans.
Another adviser added: “As usual, it seems that the people in charge at 2 The Terrace Wellington don’t actually understand the numerous restrictions been imposed on our banks nowadays by the likes of APRA when it comes to banks lending money to customers.”
Read more: Reserve Bank draws criticism over LVR decision
David Green, a lending specialist at adviceHQ, pointed out that the central bank and trading banks have opposing views. However, both have to act in the best interests of customers.
“The RBNZ has an expansionary policy with lower OCR, removing LVR restrictions and underwriting lending,” he told Good Returns. “On the contrary, banks have to protect the interests of their shareholders when market volatility is high, meaning credit policies are tightened.”
“[The decision] also provides additional funds to well-capitalised investors to help the RBNZ stimulate demand. The caveat being the lenders' appetite for risk, something the government has now addressed by stepping in and providing their own funding lines to small businesses,” Green concluded.
