Geoff Bascand, RBNZ deputy governor
The central bank wants to scrap the LVR restrictions "in response to the economic downturn caused by the Covid-19 pandemic", it said this morning.
The RBNZ has opened a seven-day consultation on the proposal.
If the restrictions are lifted, it would mark the end of nearly seven years of LVR limits. The rules were introduced in October 2013 to curb house price growth and limit high risk property purchases.
The lifting of LVR restrictions would provide a major boost to the investor market which has been stymied by the lending limits in recent years.
“LVRs were introduced as a macro-prudential financial stability tool in October 2013 and have been adjusted over time," said RBNZ deputy governor Geoff Bascand. "Adjusting the use and calibration of macro-prudential tools in response to economic conditions is how they are intended to be used."
Under current rules, relaxed last year, banks can issue no more than 20% of their mortgages to owner-occupiers with less than a 20% deposit. Banks cannot issue more than 5% of their home loans to investors with less than a 30% deposit.
The lifting of LVR restrictions could be temporary, however.
The Reserve Bank said restrictions would be lifted for a year, but added it would consider reintroducing them after the worst of the Covid-crisis.
The central bank said it would "monitor lending activity and feedback from retail banks over the next 12 months", and would "review whether to reinstate LVR restrictions".
Advisers welcomed the decision.
Kris Pedersen, of Kris Pedersen Mortgages, said lifting restrictions could help SME business owners "unlock lending at cheap rates".
"For example if they have a $800,000 rental currently leveraged to 70% the additional $80k at 80% on an interest only basis will only cost circa $200 per month but will provide some much needed stimulus to the market."
He urged caution and said banks could stick to conservative internal limits.
"I will be interested however in what the banks do, as just because the Reserve Bank relaxes, it doesn’t mean that the banks need to increase."
Nick Goodall, head of research at CoreLogic, does not believe lifting LVR restrictions will have much of an impact on the lending market.
"The banks weren't really testing the limits prior to Covid-19 anyway, so we believed it was serviceability tests that were holding the market back," Goodall told TMM Online.
"Of course this will allow some people previously not able to get a mortgage to do so - especially those first home buyers who saw their KiwiSaver balances drop, thus reducing their potential deposit. But bank criteria is still going to be pretty cautious so I don't think this will see a flood of new buyers enter the market."
