Housing market experts believe competition in the housing market will increase following the Reserve Bank's announcement that it will begin consultation on reintroducing the loan to value ratio restrictions on mortgage lending.
The Reserve said yesterday that it would look at bringing back the LVRs in March, and hinted that the restrictions would be aimed at property investors, who have been increasingly active in the housing market in recent months.
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Economics commentator Tony Alexander said the Reserve's announcement would encourage buyers to secure a property before March, adding that investors would be particularly active.
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“This is going to ignite extra pressure on house prices as we move towards the summer. Then It’ll pause for autumn and then become strong again,” he said.
Alexander said the last time LVRs changed, in 2013 and 2015, the market froze for two to three months and then took off again. “That’s probably what’s going to happen. I’d expect the market to slow down over March, April and May and take off again come June."
Westpac economist Dominick Stephens said that Reserve was starting to address "the widespread concern that its low interest rate policy is boosting house prices more than other parts of the economy. The housing market is now booming, and the public has correctly perceived that the main cause is low interest rates. That threatens both financial stability and the RBNZ’s social and political license to operate monetary policy."
"LVRs on property investors might take some of the heat out of the housing market," he said.
Stephens highlighted that Reserve had pledged earlier this year to keep the LVRs off until May 1. "This raises questions about the durability of other RBNZ commitments.
"The RBNZ was very clear in April last year that it was removing the LVRs for twelve months. The media release said, 'This provides banks and customers certainty that no further changes to LVR requirements will be made for at least one year.' Breaking that commitment for the sake of introducing LVRs two months earlier seems drastic."
He added: "Now that the RBNZ’s commitment on LVRs has been broken, the possibility is raised that the commitment on the OCR could also be broken. Clearly, this increases odds of an OCR cut in February should circumstances require it."
Mortgage broker Rupert Gough, founder and CEO of Mortgage Lab, predicted there would be a rush buyers trying to take advantage of the current lending environment before their ability to borrow was constrained in March.
"For example, a buyer with unlimited income and $300,000 available can buy a $1.5 million property today but only $1 million worth of property in March," he said.
