Today it has been reported that the Reserve Bank is proposing the removal of mortgage loan-to-value ratio or LVR restrictions.
The proposal is in response to the economic downturn caused by the COVID-19 pandemic.
The announcement states: “If the decision is made to remove the restrictions, the Reserve Bank will monitor lending activity and feedback from retail banks over the next 12 months as the economic impact of the COVID-19 pandemic becomes clearer. After that period, we will review whether to reinstate LVR restrictions. This provides banks and customers certainty that no further changes to LVR requirements will be made for at least one year.”
The LVR requirements are one of the macro-prudential tools that the Reserve Bank has available to respond to cyclical pressures and they were always introduced as a temporary measure. That was what the market was told almost 7-years ago (October 2013) when the LVR restrictions were first introduced.
We Say LVR Restrictions Should Go
This removal of the LVR restrictions will help banks to keep lending and will definitely make it easier for first home buyers who have struggled with saving the 20% deposit.
We understand that the banks will continue to be cautious with lending, and especially where incomes may be at risk.
But there are plenty of people in stable employment that should try and take advantage of the low home loan interest rates and buy their first homes and people that may want to buy investment / rental property too.
It will help prop up the economy too, especially in the building sector and real estate but will also help to sure up the property market during what could be a rocky patch.
It may also help the banks to offer support to existing customers, including with mortgage deferrals.
Will The Banks Remove Low Equity Margins Too?
The banks have been charging low equity margins for loans where there have been less than 20% equity or deposit.
It could be seen as the banks profiteering or managing the heightened risk – depends which way you look at it.
Good News Would Be Welcome!
Of course any good news would be welcome in the current environment.
Some would say that the removal of mortgage LVR restrictions are long overdue.
