Jacinda Ardern says the Government is looking at how it can tilt the playing field towards first-home buyers, following the Reserve Bank's decision to reinstate 20 percent deposits for first home buyers.
It was announced earlier on Tuesday that loan-to-value (LVR) restrictions will be tightened even further amid concerns over the potential for a "sharp correction in the housing market", the Reserve Bank said.
Restrictions will be reintroduced on March 1, requiring property investors to stump up a 30 percent deposit for a house, with first-home buyers needing 20 percent.
From May 1, this will be increased to a 40 percent deposit for investors.
The Prime Minister says deposits present "a hurdle" for first-home buyers, which is "the exact reason we are looking at every lever that we have" to make it easier for them.
"No one wants to live in a country where the only way you're able to get into a home is if your parents can help you into one because that just exacerbates the inequality we already have," Ardern said during a press conference on Tuesday.
"So that's one of the issues that's on our minds as we look to things to do to tilt the playing field towards first-home buyers."
When asked if the Reserve Bank was right to invoke the 20 percent rate, she acknowledged that they haven't applied the same rate across the board and they are taking property investors into consideration.
"But of course, looking out until May, we see that increase there at 40 percent, and that's because they're obviously seeing, in the Core Logic data, for instance, that increase in percentage in different regions of investors in the market relative to first-home buyers," she said.
LVR restrictions were dropped last April amid fears the COVID-19 pandemic would wreak economic carnage and cause house prices to plummet. However, house prices have gone in the opposite direction since then, climbing to record highs as interest rates fell.
This has prompted the Reserve Bank to introduce further restrictions, and Deputy Governor and general manager of financial stability Geoff Bascand said they're needed to reduce the risks of high-risk mortgage lending.
"We have witnessed a rapid acceleration in the housing market, with new records being set for the national median price, and new mortgage lending continuing at a strong pace," he said.
"We are now concerned about the risk a sharp correction in the housing market poses for financial stability. There is evidence of a speculative dynamic emerging with many buyers becoming highly leveraged.
"A growing number of highly indebted borrowers, especially investors, are now financially vulnerable to house price corrections and disruptions to their ability to service the debt. Highly-leveraged property owners, in particular investors, are more prone to rapid 'fire sales' that potentially amplify any downturn.
"These financial stability risks exceed the situation at the time of the Bank's December LVR consultation, resulting in more restrictive policy settings being decided on."
From March 1, the Reserve Bank will reinstate LVR restrictions at the same level they were set at before the onset of COVID-19. A further tightening of investors' restrictions will take effect two months later, on May 1.
"The two-step process is necessitated by mortgage lenders' operational capabilities," Bascand said.
It's widely believed that the reintroduction of LVRs - the size of a loan in comparison to the value of a property - will start to cool the property market.
Quotable Value (QV) said skyrocketing house prices could be mitigated by reintroducing LVR limits. The Reserve Bank confirmed in November 2020 that it would reintroduce them from March this year.
"When the LVRs do eventually kick back in just as the weather begins to cool in March, I expect the property market will start to cool as well," QV general manager David Nagel said in December.
However, not everyone believes tighter LVR restrictions will have the intended effect. Property expert Ashley Church says they'll "make absolutely no difference to house price inflation, and will dash the dreams of a section of first-home buyers again".
