The central bank is set to address LVR restrictions in its November report. Kiwibank economists say RBNZ’s criteria for loosening LVR rules may have been satisfied by recent economic trends. Restrictions currently limit investors to 40% deposits and occupiers to 20%.
The economists believe a “modest” 5% cut could happen and say a move to 30% "wouldn’t threaten the integrity of the system”.
The team of economists also believe loosening LVR rules could boost inflation to the central bank’s 2% midpoint.
The central bank’s last financial stability report came in May. The bank said risks in the system were reduced amid lower lending and house price growth. Reserve Bank governor Adrian Orr said the bank would explore an LVR relaxation in November. The next report is due on November 28.
The Reserve Bank has previously outlined three criteria for loosening restrictions; house prices falling to the rate of household income growth, a low risk of resurgence, and confidence loosening will not undermine stability.
Kiwibank economists said: “One could argue all three have been met, but it’s certainly not definitive. Credit growth has slowed, but household income growth has yet to lift materially. The need to guard against excessive leverage building in parts of the system remains.
“But credit quality has improved materially since 2016. We believe the 2nd and 3rd requirements are easier to argue, now that the housing market has cooled, with Auckland’s lead. The 1st is a matter of judgement.”