Banks given breathing space with LVR ahead of spring selling season

The Reserve Bank of New Zealand (RBNZ) is giving banks more time to meet the new Loan to Value Ratio (LVR) requirements, with the traditional bumper spring selling season about to get underway. After consulting with lenders, who argued that an extension would be required in order to clear the backlog of pre-approved loans, the RBNZ decided to push the deadline out from September until 1 October, 2016.

Under the new amendments, banks will allow only 5 per cent of loans to residential property investors to have an LVR of greater than 60 per cent (i.e. a deposit of less than 40 per cent of the value of the property). Additionally, loans to owner-occupiers with an LVR of greater than 80 per cent will be capped to 10 per cent of lending.

The RBNZ anticipates the strict constraints on mortgages will work toward reducing house price increases. The changes have also been put in place to protect those with higher borrowing needs, as they’re the most vulnerable segment of the market and the worst affected in the case of economic or financial downturns such as a recession, increase in interest rates, or a decline in the housing market.

Loans already exempt from the existing LVR restrictions, such as loans to construct new residences, are not currently affected. However, RBNZ Deputy Governor, Grant Spencer said, “The consultation process closed on 10 August and we are continuing to analyse submissions. Further adjustments to the proposals, including the exemptions, are still possible and we expect to publish a final policy position later this month”.