LVR restrictions to remain at current level: RBNZ

Wednesday 29 May 2019

The Reserve Bank has decided against easing loan to value ratio restrictions, and believes current settings "remain appropriate for now".

The Reserve Bank this morning unveiled its latest Financial Stability Report, in which it doubled down on LVR restrictions and their impact on the country's housing market. 

Governor Adrian Orr said LVR restrictions have been "successful in reducing some of the risk associated with high household indebtedness". He said current settings would remain in place, and further easing would be subject to "continuing subdued growth in credit and house prices and banks maintaining prudent lending standards".

The central bank said it had made the decision as "housing conditions have not changed much in the past six months". 

LVR rules were loosened in January, and those limits will stay in place. The central bank said it was still assessing the impact of the last loosening measure.

As things stand, banks will be able to provide 20% of their owner-occupier loans to borrowers with a deposit of less than 20%. While lenders will be able to allocate 5% of new investor loans to borrowers with less than a 30% deposit.

The RBNZ says it will review LVR restrictions every six months, unless market conditions change suddenly. 

The central bank recently came out in favour of keeping LVR restrictions as part of its macroprudential policy, following an internal review. Deputy governor Geoff Bascand hailed their impact on the market. 

Lending conditions will continue to be tight for investors and owner-occupiers. In the FSR, the Reserve Bank shows no sign of changing its stance on LVR.

In the report, the Reserve Bank says LVR restrictions have "caused a decline in the proportion of new mortgage lending going to relatively risky borrowers". The report says tigher lending standards have caused household DTI above 5 to decline and interest-only lending to fall. It added the share of new mortgages has also "been fairly flat over the past few years".  

The Reserve Bank also acknowledged "stricter rules on mortgage lending in Australia" have also impacted the New Zealand market in recent years.

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