RBNZ to ease LVRs slightly from Jan 1

Acting RBNZ Governor Grant Spencer. Photo by Lynn Grieveson

The Reserve Bank has announced it will slightly relax its Loan to Value Restrictions (LVRs) on owner occupiers and rental property investors from January 1 because of a moderation in house price inflation.

It will leave the 20 percent deposit requirement for owner occupiers, but allow an extra five percent of lending with lower deposits. It will also relax the 40 percent deposit requirement for rental property investors to 35 percent, but leave in place the current five percent limit on the amount of lending done to landlords with smaller deposits.

“Domestically, LVR policies have been in place since 2013 to address financial stability risks arising from rapid house price inflation and increasing household debt," Governor Grant Spencer said in a statement released with the bank's half yearly Financial Stability Report (FSR).

"These policies have helped improve banking system resilience by substantially reducing the share of high-LVR loans. Over the past six months, pressures in the housing market have continued to moderate due to the tightening of LVR restrictions in October 2016, a more general firming of bank lending standards and an increase in mortgage interest rates in early 2017," he said.

"Housing market policies announced by the Government are also expected to have a dampening effect on the housing market."

The bank said it would modestly ease the LVR restrictions from January 1.

Those changes are:

  • No more than 15 percent (currently 10 percent) of each bank’s new mortgage lending to owner occupiers can be at LVRs of more than 80 percent.
  • No more than 5 percent of each bank’s new mortgage lending to residential property investors can be at LVRs of more than 65 percent (currently 60 percent).

“The Bank will monitor the impact of these changes and will only make further LVR adjustments if financial stability risks remain contained. A cautious approach will reduce the risk of resurgence in the housing market or deterioration in lending standards," Spencer said.