Reserve Bank has moved to reintroduce house loan deposit rules

The Reserve Bank has moved to reintroduce house loan deposit rules

With these changes to borrowing and lending on the way – refinancing, getting a mortgage, buying and selling property may come with new stresses.

Our Quay Law lawyers have shared this article (originally sourced from ) with you as you may find it of interest. It would possibly be applicable if you are refinancing or buying/selling a property.

Loan-to-value restrictions (LVRs) have been suggested as a solution to help cool the housing market down.

Reintroduce house loan deposit rules

At 9 am on Wednesday 17, the Reserve Bank has announced that it will be reintroducing LVRs for risky lenders as of 1st of March – two months earlier than its previous deadline of 1st of May.
Since setting this deadline of 1st of May in response to the Covid-19 pandemic, the rate of lending to rental investors as well as owner-occupiers has soared – which has caused house prices to rise by almost 5%.

The increase in house prices comes as a surprise to many as economists predicted that house prices would fall between 10% and 20% following the Covid-19 lockdown.
Rush to buy expected.

The decision to move up the deadline to March 1st puts pressure on rental property investors to move quicker, may prompt a spike in purchasing, and could see first-time home buyers outbid in a frantic rush to secure financing before the restrictions come in.

Early comments

November 25th was the expected date for the Reserve Bank’s Financial Stability Report, the comments on LVR controls seem to have been a pressing enough matter for the Reserve Bank to come out and comment early.

Despite these early comments, the Reserve Bank did not clarify whether or not the LVR controls will be reintroduced for rental property investors only. This lack of clarification has triggered concerns that first time home buyers will be restricted again as well.

Rising investor borrowing

Rental property investors have nearly doubled their high LVR borrowing this year, in line with the housing market heating up, and will be particularly affected by the calls to reinstate the LVR controls.

September saw house sales rise to a staggering $3.5 billion; nearly $2.5 billion of which was made up by fresh loans and approximately 1 billion from stored equity of owner-occupiers and rental investors.

Placating the banks

The Reserve Bank has put off the planned move to force banks to increase their capital levels – reducing profitability – until 2022. Perhaps this year-long reprieve will soothe the pain of cooling off their lending in the face of LVR restrictions. Dividend bans on the banks will, however, remain in place until March 2021.

Bank capital is set to rise by up to $6 billion this year for the big four Australian-owned banks (ASB, BNZ, Westpac, ANZ) which isn’t popular with the share-holders but is helping the current account deficit.

The Reserve Bank also made warnings to IAG and Suncorp against paying dividends to its shareholders. With warnings from the central bank like “only make dividend payments if it is prudent for that insurer to do so, having regard to their own stress testing and the elevated risks in the current environment” – it looks like it will be a rough return for the Australian-owned IAG.

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