Are interest-only loan limits now less likely?
Restoring loan-to-value restrictions and government housing reforms may make restrictions on interest-only loans less likely, according to a new report.
Wednesday April 7, 2021, 4:38 PM
Kelvin Davidson, senior economist at CoreLogic, says there are “clear signs” that the reintroduction of LVR rules has “dampened investor buying activity”, with sharp decline in LVR loans> 70% to investors since the rules were announced in February.
High LVR loans fell rapidly, but remain above pre-Covid levels, according to CoreLogic analysis.
With the first of the government’s sweeping housing reforms already in place, like the phasing out of interest deductibility and the extended bright line test, Davidson thinks interest-only limits are less likely.
According to Davidson, the changes to interest deductibility will reduce demand for interest-only loans, with larger holdings becoming larger under the new rules.
As investors adjust their portfolios to reduce debt under the new regime, restrictions on interest only may not be necessary, he says.
“We therefore suspect that the chances of further regulation in the form of ceilings on interest-only loans (IOs) have diminished considerably, not least because equity is now king from a borrower’s perspective. so there might not be as much demand for IO loans. anyway. “
Ministers and the Reserve Bank of New Zealand are currently reviewing whether interest-only loans pose a risk to financial stability.
The central bank is expected to report on the subject in the coming months.
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