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Now it will be easier to obtain a bank loan to buy a house, with the elimination of the restrictions of the relation loan-value (LVR) on the part of the Reserve Bank, effective from tomorrow.
Photo: 123 RF
Restrictions were imposed in October 2013, meaning that no more than 10 percent of banks’ new mortgages by value could be for people with deposits of less than 20 percent.
With house price inflation, the requirement that buyers cancel the 20 percent deposit has been prohibitive.
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Reserve Bank Deputy Governor Geoff Bascand said he received more than 70 submissions on the proposed changes.
“The feedback raised a number of valid points and concerns that were carefully considered.
Applicants against the removal of the LVR policy were concerned about possible adverse effects on financial stability, such as the risk of bank failure.
They also noted that the economy had weakened and job security had declined, and people’s ability to pay a mortgage would likely decrease in the coming months.
“Given the current uncertainty surrounding the economic outlook, the Reserve Bank believes that banks are unlikely to weaken lending standards to subprime borrowers. The most likely risk is that banks will be overly cautious of loans to creditworthy borrowers, “said Bascand.
“Rather, removing the LVR constraints now supports financial stability by removing a potential obstacle to the flow of credit in the economy, helping to smooth the recession.”
The policy would be reviewed in 12 months.
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