It had been predicted that the LVR rules might be lifted by the end of this year.
In a speech this morning opening the BIS Cross-Border Financial Linkages Conference in Wellington, Reserve Bank governor Graeme Wheeler did not give any indication of when the rules might be relaxed.
He said they had led to a significant reduction in high-LVR lending, a drop in sales and a fall in house price inflation. “While other factors, such as subsequent interest rate increases over the period March 2014 to July 2014 are also helping to constrain demand, annual house price inflation fell from around 10% to 5% currently, despite high levels of net immigration.”
He said while LVR rules had a financial stability goal, they were also an important part of the bank’s monetary policy assessment.
“We believe the dampening impact of LVRs on house price inflation and credit, and the diminished ‘wealth effects’ on spending associated with it, have reduced consumer price inflation pressures by an amount similar to a 25-50 basis point increase in the OCR. In essence, the reduction in housing pressures allowed us to delay the tightening in interest rates, thereby reducing the incentive for any additional capital inflows into the New Zealand dollar in search of higher yields.”
Wheeler said the bank had indicated the rules were not permanent.
“They will be removed once housing market pressures have moderated and when we are confident there will not be a resurgence in house price inflation. We will be reviewing these criteria and their implications for LVR restrictions in next month’s Financial Stability Report.”
