Descriptively, Hickey and Labour are both right on LVR’s

I’m not commenting of course, but both LVR restrictions will limit lending to SME’s and on house building.  As is stated by:

• Bernard Hickey,
• Labour. (Via Kiwiblog)

This was known before the LVR restrictions were put in place, hence why it is seen as an indirect tool.  Mortgages are used as a cheaper finance option for small firms, this is one of the most widely known “secrets” around (sorry that article is only available to Infometrics clients it seems) – the regulations were put in place knowing that it would credit constrain these groups.  Whether this is appropriate or not … well that would be commenting.  If you want to in comments go for it 😉

Note:  The link isn’t available, sorry – I thought our articles from March 2013 were freely available now, but seems not!  The article is on LVR’s and risk-weighting adjustment (before it was clear which tool the Bank was going to use), but in the LVR section the quote I wanted is:

Furthermore, it is important to ask who will be getting credit constrained by the introduction of LVRs.  Who are the sorts of people that load up on mortgage debt?

It is our view that the credit constraints will be most binding for the following groups.

• Young borrowers who haven’t built up sufficient equity
• Small business holders who rely on mortgages to fund investment in their business
• The construction industry, by making it more difficult for people to use their property as equity when looking at infill or the construction of a new house

As a result, the introduction of a maximum loan-to-value ratio will lead to collateral damage for small firms and some private investment in the residential building industry.