Unpopular LVR rules to be loosened

The bank has opened a two week consultation period on allowing investors to take out a loan with a 35% deposit, instead of the existing 40%.

For owner-occupiers, banks will be able to use 15% of their new lending for clients who have a deposit of more than 80%. The existing rule is 10% of new lending.

The new speed limits are expected to come into play on 1 June. The existing LVRs have been in place since November 2021 when risks were elevated.

Restrictions on high-LVR residential mortgage lending set a ‘speed limit’ on how much new low-deposit lending banks can do.

The RBNZ says the restrictions built resilience in the financial system, which has been evident in the past year as house prices have fallen without widespread impacts to financial stability.

Deputy governor Christian Hawkesby says the RBNZ’s assessment is that the risks to financial stability posed by high-LVR lending have reduced to a level where the existing restrictions may be unnecessarily reducing efficiency. “In particular, impeding the provision of credit to some otherwise creditworthy borrowers, which is not proportionate to the level of risk that we see.”

CoreLogic senior property economist Kelvin Davidson says the timing of the RBNZ’s announcement is curious.

He says opinion is that the RBNZ would not be loosening LVR rules unless it was going to go ahead with debt-to-income ratios next year. “The bank gives with one hand and takes with the other.

“In the end the bank can tinker with its rules but high mortgage rates are still hampering the property market. And when it comes to monetary policy the bank is still playing with loose rules.”

Hawkesby says LVR restrictions promote financial stability by limiting high-risk mortgage lending. This is done with the aim of reducing the impact and severity of housing market corrections by increasing the resilience of the banking system and households.

“National house prices have fallen towards a level that is more consistent with medium-term fundamentals. As a result, while house prices may continue to fall, the probability of a further large correction in house prices has reduced.” he says.

Alongside this, lending conditions have tightened significantly as banks’ debt servicing assessments allow for higher interest rates.