12 Nov 2020

ASB imposes immediate 30% LVR on investors

5:58 pm on 12 November 2020

ASB bank has unilaterally imposed an immediate loan to value ratio on property investors, who will now need a 30 percent deposit.

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Photo: RNZ / Dom Thomas

The Reserve Bank (RBNZ) is due to start consultation with retail lenders on bringing back the loan to value ratios (LVRs) from early next year as a response to an overheating property market.

The LVRs were suspended at the start of the Covid-19 outbreak to help support the economy.

ASB chief executive Vittoria Shortt said the property market had not been affected by Covid-19 as many feared and the bank was seeing record applications for mortgages, which were up 70 percent on a year ago.

"If this increase in investor demand continues it could lead the country down a potentially unsustainable path."

"ASB believes a balanced and sustainable housing market is in the best interests of all New Zealanders ... this is about helping Kiwis build their financial futures during exceptionally challenging times so we are choosing to take this step now," Shortt said.

All property investors would now need a 30 percent deposit for a loan from the current 20 percent requirement.

First home buyers are unaffected by the new policy.

"For us, it is about being a prudent and responsible lender. We all have to play our part and we're confident Kiwis looking to buy their first home will welcome this move," Shortt said.

The RBNZ's various moves to push down wholesale interest rates and pump billions of dollars into the economy through banks has been held partly responsible for a surge in house prices in recent months.

It comes after Prime Minister Jacinda Ardern today said house prices could not keep increasing at the rate they have.

Economists had warned that reinstating the LVR and lending restrictions would help stabilised the housing market.

House prices have increased 19.8 percent year-on-year with the median now at $725,000.

Auckland's median house price hit the $1 million mark for the first time, up from $860,000 in October 2019.

Yesterday the Reserve Bank announced its Funding for Lending Programme (FLP) for banks at rock bottom interest rates, while it held the official cash rate (OCR) at a record low 0.25 percent.

The committee also said it was still looking at the possible use of a negative OCR, as well as other stimulus measures such as buying foreign assets.

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