Will LVR easing help?

Loan-to-value rules relax from today, increasing the amount of low-deposit lending that 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.

They have been tightened and loosened over time, most notably in 2020, when they were removed. They were reinstated in 2021.

Today, the amount of new lending that banks can do to borrowers with up to 20% deposit will increase from 10% to 15% of all new loans.

They will be able to lend 5% of new lending to investors with a deposit of less than 35%, rather than 40% previously.

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

‘‘There isn’t a lot of history, and as we all know, the housing market has many complex and time-varying drivers. That said, 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.

He said that 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.

ANZ had recently revised up its house price forecast, due to strong migration and the fact that some fixed mortgage rates were falling, Workman said.

‘‘We expect house prices to lift on a quarterly basis over the second half of 2023. Downside risks to our outlook remain: OCR hikes could have a larger impact on household incomes than we – and the Reserve Bank – expect, and that could drive an increase in forced house sales.’’

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.

National has indicated it would reverse Labour’s decision to remove deductibility, which has increased investor costs significantly.

‘‘It’s uncertain whether the risk in practice is that the non-deductibility policy staying will cause a flurry of sales, or whether the policy going will cause a rush of purchases. But either way it’s potentially a big driver of the market this year,’’ Workman said.

Nick Goodall, head of research at CoreLogic, said he did not expect the LVR change to make a difference.

‘‘The big problem with buying with a lower deposit is that it means you need more debt, and right now that’s constrained by higher interest rates and even higher serviceability test rates.’’

Infometrics chief executive Brad Olsen agreed.

‘‘I don’t think it’s a major driver of any housing changes. You’ll have a few more people, a few more investors, a few more owner-occupiers who are able to meet various thresholds,’’ he said.

‘‘If you’re an investor and you now go from 40% to 35% in terms of deposit, you’ve still got to figure out how you are going to afford what is effectively a pretty big loan on buying that new house.

‘‘I can’t imagine many investors out there are completely fine to do the loan repayment but are only going to make it in after the LVR change comes through; that would be a very limited pool of people.’’