LVR restrictions to stay put: Westpac

Westpac economists believe the Reserve Bank will keep LVR speed limits at their current levels, amid fears over house price stability.

The big four bank's team of economists, including Michael Gordon and Dominick Stephens, predict the long-awaited Financial Stability Report on Wednesday will not deliver a huge change for the housing market.

The economists believe the New Zealand economy is poised for an upturn along with the housing market. Fears of an over-heated housing market could prompt the central bank to keep things as they are for now, according to Westpac's latest weekly report. 

"Our long-held view has been that, after the economic slowdown over the past year, we will see a re-acceleration in economic growth underpinned by increases in fiscal spending and supportive monetary policy. Recent data indicate that just such a re-acceleration is underway, and it’s likely to continue over the coming years.

"With much of the pickup in activity centred on the housing market, stability concerns are back on the radar. As a result, we expect the RBNZ will keep the current loan-to-value restrictions unchanged when it releases its latest Financial Stability Report."

The Westpac economists predict supportive monetary policy will aid house price growth.

"Looking ahead, with inflation still struggling to reach 2%, we think that the RBNZ will cut the cash rate again in early 2020 and keep it at low levels for an extended period. That will support a further acceleration in the housing market and household spending over the coming years. In fact, our forecast for nationwide house price inflation of 7% in 2020 could come good even sooner."

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