Mortgage loan curbs may be gone in a year

RICHARD MEADOWS
Last updated 07:05 03/04/2014

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Home-loan restrictions introduced by the Reserve Bank in October could be gone as early as a year from now, an industry source says.

The "speed limits" restricted the amount of high loan-to-value ratio (LVR) loans that banks can issue.

The policy's success has taken even the Reserve Bank by surprise, with lending by major banks staying well under the 10 per cent limit so far.

That has left some first-home hunters who have small deposits struggling to secure finance in the overheated property market.

However, all the signs point to the Reserve Bank thinking hard about when to remove the restrictions, which were designed to be a temporary measure.

An industry source said a senior Reserve Bank official had recently put a 12 to 18-month timeframe on the LVR rules being lifted.

A Reserve Bank spokesman said that as far as he knew, the central bank had not been specific or discussed a timeframe for lifting the restrictions.

However, that 12 to 18-month window closely aligns with the expected cycle of interest-rate rises, which started last month.

Reserve Bank deputy governor Grant Spencer said last week that as interest rates moved back to more normal levels, "we will expect to have greater scope to ease or remove the LVR restrictions".

A Reserve Bank bulletin article this week reaffirmed that the bank is considering the conditions that would justify their removal.

While there was no set trigger, it said the bank wanted evidence of a better balance in the housing market, and confidence that removal would not lead to a resurgence of demand.

The article acknowledged that the policy room provided by LVR restrictions could only be temporary: "In the medium to longer term, imbalances will need to be resolved through appropriate longer-run policy measures, including actions to improve the housing supply," the Reserve Bank said.

The LVR policy was aimed at taking some steam out of the rapidly inflating property market and putting the brakes on credit growth.

Reserve Bank estimates suggest house-price inflation would have been about 2.5 percentage points higher in the year to the end of February without the restrictions.

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- Fairfax Media

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