LVR a “permanent tool”: RBNZ Governor

Adrian Orr, who became governor last month, said he believed limits on low-deposit mortgage lending would be a “permanent” part of the bank’s policy but would change “varying on what is needed”.

In an interview with RNZ, Orr said RBNZ was weighing whether to further ease LVR restrictions, but it was “too early to say”. He added it was “wonderful” LVR restrictions had not slowed growth among first time buyer owner-occupiers.

The governor admitted LVR was a “blunt tool”, but said it was a “wake up call” to banks. “Banks need to take far more responsibility around, are they lending to people who are able to afford on a sustainable basis through time?”

Orr said RBNZ would continue to lean on other tools to influence the property market, including interest rates, capital ratios, and countercyclical capital ratios.

He added debt to income ratios (DTIs) were still under consideration, but admitted they were “brutally blunt”:  “I have to be very very clear, what is the market failure? And hence what is the best intervention? And what is this tool?"

Orr told RNZ the biggest failure in the housing market was “short term-ism”, with banks the “principal agents”. "People are myopic around their asset classes, there is a asymmetry of information around good investment."

He added he would not rule out further policy levers to influence the property market if prices spiralled out of control. “I would never rule out doing more, why would I? if you see extreme movement and extreme concentrations, you have to do more.”