RBNZ proposes easing LVR restrictions

This following steep falls in house prices

RBNZ proposes easing LVR restrictions

The Reserve Bank of New Zealand has proposed easing mortgage loan-to-value ratio (LVR) restrictions following large falls in house prices.

LVR restrictions limit high-risk mortgage lending, to help mitigate the risk of people defaulting on their mortgages and promote the stability of financial markets.

RBNZ has proposed lifting the limit on loans for owner-occupiers with LVR above 80%, from 10% to 15%, from June 1. The proposal will also enable banks to make 5% of total new investor loans to those with LVRs above 65%, up from the current 60%.

Christian Hawkesby (pictured above), RBNZ deputy governor, said the current LVR settings were put in place in November 2021 when risks were elevated, but these have now been reduced and “may be unnecessarily reducing efficiency.”

“National house prices have fallen towards a level that is more consistent with medium-term fundamentals,” the bank noted in a statement. “As a result, while house prices may continue to fall, the probability of a further large correction in house prices has reduced. Alongside this, lending conditions have tightened significantly as banks’ debt servicing assessments allow for higher interest rates.

“Restrictions on high-LVR residential mortgage lending set a ‘speed limit’ on how much new low-deposit lending banks can do.”

RBNZ said it is consulting with registered banks over the next two weeks on the implementation of the proposal, which if effected, will be made via a change in banks’ Conditions of Registration.

Brokers and other interested parties wanting to provide feedback on the proposal can do so by emailing [email protected].

RBNZ’s latest assessment of the current and emerging risks to the financial system will be detailed in its May 2023 Financial Stability Report.

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