In its submission to the Reserve Bank on LVR restrictions it has asked that any changes should not make it harder for first-home buyers to purchase properties.

The bank is consulting on tools such as loan-to-value speed limits and is expected to implement them in the next couple of months with the aim of limiting the amount of lending a bank can do in the high-LVR range.

But PAA general manager Jenny Campbell said the association had very real concerns that such a move would have many knock-on effects for everyday New Zealanders.

Many brokers had approached her and were seriously worried about what LVR restrictions might do for their clients.  “It’s a serious concern, particularly for brokers outside Auckland.”

She said Auckland’s hot housing market was more to do with a lack of supply than a true property price bubble. “The issue of undersupply is being addressed but it will take more time for these new homes to be built and meanwhile an LVR restriction will only make it harder for first-home buyers to even get on to the property ladder.”

Those buyers would be forced to remain tenants much longer, Campbell said, which could drive house prices even higher as property became a more lucrative investment. “Property investors and speculators will be left to purchase housing stock to accommodate a greater supply of tenants who will have limited capacity to become homeowners.”

Would-be buyers outside Auckland and Christchurch would be unfairly affected if the policy were introduced across the board, in the PAA’s view. Borrowers would seek out more expensive second mortgages and  LVR restrictions could also trap existing borrowers with their lenders and loans.

Campbell said many brokers had worked with investor clients who found that when they went to sell properties during the downturn, the banks took all the proceeds to lower the LVR on their other mortgages. She said that was likely to happen again. “It could be quite devastating. Brokers wanted us to take a strong position on this.”

Reserve Bank governor Graeme Wheeler has indicated that he wants LVR restrictions as a way to shore up stability. But Campbell said there was no evidence that high LVR loans were easy to get or that those borrowers were any more likely to default. She said servicing ability was more important than the size of a deposit. “It is simply not possible to get a high LVR loan unless you have proved to the lender’s satisfaction that you are capable of servicing that loan and that your credit history and employment/income status is secure enough to warrant the ‘risk’ of a high LVR loan.”