Breaking news - Reserve Bank Removes LVR Restrictions For 12 Months!

Yesterday we all have heard the news that the Reserve Bank has decided to remove mortgage loan-to value ratio (LVR) restrictions for 12 months, effective from 1st of May. According to the reserve bank the decision was made to ensure LVR restrictions didn’t have an undue impact on borrowers or lenders as part of the mortgage deferral scheme implemented in response to the Covid-19 pandemic.
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We have summarised few points of what we’ve learned about this decision:

• The LVR restrictions is to be removed for the next 12 months.
• The decision is effective as of 1st May. The change will be made via a change in bank Conditions of Registration.
• The Reserve bank will review the most appropriate setting for LVRs in a year’s time.
• It doesn’t necessarily mean zero deposit, the removal is towards the LVR restrictions introduced in October 2013.
• It is unlikely that banks will weaken lending standards to high risk borrowers. Successful application needs proven income and present evidence showing its not been affected by Covid-19 pandemic (like any other cases in the recent).

Deputy Governor and GM of Financial Stability Geoff Bascand says the decision was made in line with its financial stability mandate. The Bank reached its conclusion after reviewing a Regulatory Impact Assessment and robust feedback received from submitters over the consultation period.

Views on the proposals were mixed, reflecting both the costs and benefits of borrowing restrictions. Some submitters recognised that removing the restrictions might allow more first home buyers to purchase a home. On the other hand, all locally incorporated banks who responded were in favour of removing LVR restrictions, noting this will allow them to support customers through the impact of Covid-19.

We are yet to hear from the banks about their actual policies. While we think this decision may lead us towards a tighter lending standard, there is no indicating of this until the banks’ next move (which we are also dying to know!). No doubt the removal of the LVRs is great news to anyone who wish to enter housing market at this stage. Despite the changes, it certainly creates opportunities for both buyers and sellers in this tough period, as well as helping to soften the downturn. Has it open up opportunities for existing property owners to release equity? Yes indeed!

Don’t hesitate to give us a call or online chat if you wish to discuss further, our experienced team will be more than delighted to analyse the situation and recommends upon your request.
 
We will update as soon as we hear from the banks so watch this space!