David Cunningham: Squirrel Mortgages CEO on the Reserve Bank easing loan-to-value-ratio restrictions

The Reserve Bank's continuing to change its approach to preventing risky lending. 

It's further easing loan-to-value-ratio restrictions, allowing banks to lend more money to low-deposit borrowers. 

It follows the roll-out of debt-to-income restrictions last year, restricting how much banks can lend to people who already have a lot of debt relative to their income. 

Squirrel Mortgages Chief Executive David Cunningham told Mike Hosking LVRs had been imperfect on their own. 

He says when property prices went up, it allowed banks to lend more, pushing up property prices further, with borrowers' incomes not factored in. 

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Episode Transcript

Speaker 1 (00:00):
Amazing how the Reserve Bank views the world once adary
and leaves the building, isn't it. We've got changes to
the loan to value ratio LBRs. Essentially the retail banks
will be able to lean more money to people with
low deposits. So does it far up the housing market?
David Cunningham, as the CEO of Squirrel Mortgage Mortgages back
with us.

Speaker 2 (00:14):
Good morning, Good morning mine.

Speaker 1 (00:16):
Are we on the right track here?

Speaker 2 (00:18):
We are? For once? I'm quite complimentary of the Reserve
Bank on the changes here. They've got a good toolkit
and they're using it wisely. So yeah, this is a
really good move and the background paper that they've done
on it is sadly presented and based on good research
and good thinking. So congratulations to the Reserve Bank for
a change.

Speaker 1 (00:38):
Is it debatable that we ever needed to be as
restricted as we have been with.

Speaker 2 (00:43):
The toolkit that the Reserve Bank had before with loan
to value ratios, it lacked one thing and that was
that when enterprices property prices went up, it basically enabled
banks to lend more. So property prices will go at more,
which enabled banks to lend more and so on, and
so what the debt to income ratios, which in a
bit over a year ago have done is set some
guardrails around that that says, hey, it's this thing called

(01:05):
income and how much you're borrowing. And so those two
together work far more effectively because there's a natural guardrail
from the debt to income ratios, which which sort of
the Reserve Bank calls this pro psychicality. The more you lend,
your more you can lend sort of things. So yeah,
I think it's sort of good outcome, and it's enabled
the Reserve Bend to ease the loan to valuatio restrictions,

(01:27):
not that they were really applying because the economy has been.

Speaker 1 (01:29):
Dead were well, that was my next question. Where's the
demand bit at? I mean, is there a demand? If
you had more money, will people take it up?

Speaker 2 (01:38):
Look, there's been no constraint for ages. Now. You know,
we've been in recession for the best part of two years,
so you know, the housing market has been falling in
price for a long period and then stable for the
last year. So the demand's not there today. This is
very much a long term change to the toolkit and
how it will be applied. It's positive, definitely. First home
bars because the speed limit, as it's called, so the

(02:02):
amount of lending banks can do above that LVR level
that the Reserve Bank sets, which is eighty percent for
homeowners and seventy percent which is slightly raised for investors.
So they've raised that amount that can be done from
twenty to twenty five percent for the homeowners and from
five to ten percent. Now that's a speed limit. Banks

(02:22):
will always operate under that speed limit. So when the
speed limit will say twenty percent for home buyers, they
operate at fifteen. So it's not like, you know, you
get to part get a speeding ticket and well whatever,
I'll pay it. You can't do that as a bank.
They never want to pass that because the Reserve Bank will.

Speaker 1 (02:37):
Come down on them hard, all right, David appreciated. David Cunningham,
CEO of Squirrel Mortgages, with us this morning. For more
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