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What changes to rules will mean

Susan Edmunds susan.edmunds@stuff.co.nz

Loan-to-value rules will relax today, increasing the amount of low-deposit lending banks can do.

But commentators say the change is unlikely to have a significant impact on the housing market. The loan-to-value restrictions (LVRs) were introduced as a way to strengthen the banking system, reducing the proportion of people with large mortgages relative to the value of their properties. In 2020, they were removed. They were reinstated in 2021.

From today, the amount of new lending that banks can make to borrowers with up to 20% deposit will increase from 10% to 15% of all new loans. Banks will be able to lend 5% of new lending to investors with a deposit of less than 35%, rather than 40% previously.

ANZ Bank senior economist Miles Workman said it was not easy to quantify the effect of the LVR rules on the housing market.

‘‘Although the recent change to LVR settings is a tweak rather than a wholesale overhaul, it does represent an easing in financial conditions.’’ He said this added risk that the official cash rate might need to increase further, but the Reserve Bank viewed its monetary policy and financial stability tools separately. Workman said ANZ had recently revised up its house price forecast, due to strong migration and the fact some fixed mortgage rates were falling.

‘‘We expect house prices to lift on a quarterly basis over the second half of 2023.’’

ANZ economists said a longerterm driver of the housing market would be the future of investors’ ability to deduct interest expenses from their rental income for tax purposes. The National Party has indicated that it will reverse Labour’s decision to remove deductibility, which has increased investor costs.

‘‘It is uncertain whether the risk in practice is that the nondeductibility policy staying will cause a flurry of sales, or whether the policy going will cause a rush of purchases. Either way, it is potentially a big driver of the market this year.’’

Nick Goodall, of CoreLogic, said he did not expect the LVR change to make a difference. Infometrics chief executive Brad Olsen agreed.

‘‘You will have a few more people, a few more investors, a few more owner-occupiers who are able to meet various thresholds.’’

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en-nz

2023-06-01T07:00:00.0000000Z

2023-06-01T07:00:00.0000000Z

https://fairfaxmedia.pressreader.com/article/281539410339307

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