In an announcement this afternoon, the central bank said the removal of LVR rules would take effect for 12 months. The changes come into effect on May 1.
The RBNZ said the decision was made "to ensure LVR restrictions didn’t have an undue impact on borrowers or lenders as part of the mortgage deferral scheme implemented in response to the Covid-19 pandemic".
The Reserve Bank’s move came after a regulatory impact assessment and "robust feedback" from submitters, after a week long consultation period.
RBNZ deputy governor Geoff Bascand said:
"Although the consultation period was short by the Reserve Bank’s typical standards, this was necessary to respond swiftly to an unprecedented set of economic events. The feedback raised a number of valid points and concerns which were all carefully considered.”
The decision is likely to provide a boost to home buyers, ending restrictions put in place during 2013. Yet advisers say banks may not change their internal LVR controls, rendering the move ineffective.
The Reserve Bank acknowledged concerns "the ability of people to service a mortgage will likely decline in the coming months".
Bascand said the removal of LVR rules took into account concerns about financial stability.
“Given the current uncertainty around the economic outlook, the Reserve Bank considers that it is unlikely that banks will weaken lending standards to high risk borrowers. The more likely risk is that banks are overly cautious with lending to credit-worthy borrowers.”
The Reserve Bank hopes the action "will also avoid any uncertainty around the implications of LVR limits from the mortgage deferral scheme". “It is important banks continue to provide support to credit-worthy borrowers during these extraordinary times," Bascand added.
The central bank will review LVR rules in 12 months' time, Bascand said.