The Reserve Bank has signalled that from the 1st October all the banks will be limited to the number of loans that they can lend to borrowers (new and existing) over 80% of a property’s value. At present most banks will lend 95% of a property’s value to suitable applicants. Whilst the banks have not yet communicated how they will allocate the limited supply of these loans it is safe to assume that the stronger the applicant the more likely they are to be successful in securing approval.
Our own view is that this will hurt the group who should be purchasing houses – the first home buyer. It will not stop the investors and speculators, as most of these buyers have other properties or assets to leverage off, and they will be able stay below the prescribed LVR limits. Non-residents or foreigners , who are the biggest cause of inflated houses prices in Auckland, are generally well cashed up so the proposed changes are unlikely to affect them. It appears then that LVR restrictions will do more harm than good. They are not the answer.
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