September 19th, 2024
The Reserve Bank of New Zealand - Te Pūtea Matua announced plans on Wednesday to ease mortgage loan-to-value ratio (LVR) restrictions, which promote financial stability by limiting high-risk mortgage lending.
According to the bank, the current LVR settings, in place since November 2021, have successfully built resilience in the financial system, as evidenced by falling house prices that have not had widespread impacts on financial stability.
Deputy Governor Christian Hawkesby said that the risks to financial stability posed by high-LVR lending have now reduced to a level where current restrictions may be unnecessarily reducing efficiency.
He said that this might be impeding the provision of credit to some otherwise creditworthy borrowers, which is not proportionate to the level of risk.
The Reserve Bank's assessment shows that national house prices have fallen towards a level more consistent with medium-term fundamentals, reducing the probability of a further large correction in house prices.
In response to this change, the Reserve Bank is proposing to ease LVR restrictions effective from 1 June 2023. The new proposed limits include a 15% limit for loans with LVR above 80% for owner-occupiers and a 5% limit for loans with LVR above 65% for investors.
The bank is currently consulting with registered banks on the implementation of this proposal over the next two weeks.
If the proposal is accepted, the change will be made via a change in banks' Conditions of Registration. Members of the public wishing to provide feedback can email rbnz-info@rbnz.govt.nz. The May 2023 Financial Stability Report will detail the Reserve Bank's latest assessment of current and emerging risks to the financial system, according to the Reserve Bank.
