Business

Questions over LVR market response

10:02 am on 11 November 2014

An economist at the Bank of New Zealand says if the Reserve Bank were to water down or remove its restrictions on mortgage lending to people with small deposits, the market would take that as an effective easing in monetary policy.

Photo: RNZ

Craig Ebert said this would be a bold move at this point because even though house price inflation has eased, one indicator shows house prices still rose nearly 6 percent in October.

That's compared to a little above 8 percent before the restrictions were introduced a year earlier.

Mr Ebert said house prices in Auckland, the region where the restrictions were supposed to have the greatest effect, rose more than 9 percent in the last year.

"We certainly think, eventually this policy will have to be backed away from but I think for the meantime there is a question mark as to the way the market might respond if these credit constraints are completely taken off the board immediately."

Mr Ebert says fixed mortgage rates are headed back to record low levels.

Listen to Craig Ebert on Business News