Expert doubts loosening of loan-to-value ratios will help more people get on the property ladder

An expert doesn't expect the loosening of loan-to-value (LVR) restrictions will help more people get on the property ladder.

The Reserve Bank (RBNZ) announced on Wednesday it will soon ease up on the restrictions, which place a cap on how much a bank can lend relative to a purchase point.

That means it's more likely people will be able to secure a home with just a 10 percent deposit due to falling prices

In 2021, the RBNZ started requiring higher deposits when the housing market skyrocketed. However, the market has since dramatically cooled off largely due to sky-high interest rates.

Frances Sweetman, a portfolio manager at Milford Asset Management, said on Thursday she doesn't expect LVRs being loosened to have a material impact on the housing market.

"There's not this huge number of people who are trying to get on the property ladder with small deposits simply because mortgage payments are so high. That in itself… becomes unaffordable and stops people from doing it," she told AM.

"Lending or buying with a reasonably low deposit is so constrained in that market… that these restrictions are almost not required."

It wasn't necessary to keep lending risks down - which was the reason for the LVRs in the first place, Sweetman said. That's because those risks were already being kept low by a market constrained by high-interest rates, she said.

The RBNZ has constrained demand by cranking up the official cash rate by 500 basis points since October 2021 to contain runaway house prices and rampant inflation.

Looking ahead, Sweetman also said the RBNZ has debt-to-income (DTI) restrictions to play with - which could come into force next year.  

"If the housing market starts to kick on again and we see a lot of people trying to take these types of mortgages and we see that mortgage risk rising, they have another tool in the toolbox they can deploy later."

When DTIs are introduced, they're expected to have more of an impact on investors, CoreLogic chief property economist Kelvin Davidson said.

He said relaxed LVRs were "cold comfort" for investors, given smaller deposits mean higher DTIs.

"Just as the RBNZ has noted in its consultation too, the looming DTI rules are more about restraining the 'next cycle' for house prices and improving long-run financial stability, not so much about being a binding factor in the shorter term," Davidson said in a statement.

"However, investors probably shouldn't take too much comfort from that. This probable shift in the lending landscape is a major change and needs to be watched closely. 

"But even if house prices stabilise soon, we don't think they’re about to boom again, not least because DTIs will tend to dampen any future cycles, while mortgage rates are also likely to be 'higher for longer' over the next few years too."