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Reserve Bank to scrap LVR restrictions

The Reserve Bank is set to remove loan-to-value ratio restrictions on mortgages in the wake of the Covid-19 outbreak.

Tuesday, April 21st 2020, 10:08AM 9 Comments

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."

Tags: Lending LVR RBNZ Reserve Bank

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Comments from our readers

On 21 April 2020 at 10:43 am mrmrthomas said:
There is an editorial note seeming to imply that this relaxation only applies to new lending within the banks' existing books to cover cases where a deferral of payments due to Covit 19 inflates a loans balance in excess of the allowable LVR. Who else reads it this way?
On 21 April 2020 at 10:46 am said:
This would be a welcome relieve. unfortunately, a stricter debt servicing criteria imposed by the lenders will continue to affect a lot of the borrowers.
On 21 April 2020 at 11:45 am Skeptical said:
I think those editorial notes are clarifications around existing rules. Not what they are intending to look at.

I think this is great, we impose LVR restrictions when times are good to save us when times are bad. Times are bad now, or at least are going to be. Let's use this tool to soften the blow!
On 22 April 2020 at 10:08 am valkyrie6 said:
Banks in New Zealand have had an extremely low level of defaults and mortgagee sales over the last decade, ( less than 1%) which has not been a major threat to their businesses , the way we have assessed customers serviceability and credit viability over this period in Australasia has been one of the highest standards in the world, this got us through the GFC with minimal casualties so I dont think banks in NZ will relax now regardless of LVR restrictions.
On 22 April 2020 at 11:03 am Andy the adviser said:
Hopefully, common sense will prevail among advisers and banks, responsible lending decisions will be adhered to, and we all live happily ever after.

Unfortunately this has not always been the case, and common sense seems to have taken a back seat!
On 22 April 2020 at 11:55 am Amused said:
Banks don’t have a lot of appetite to lend more against investment properties as they already have to hold more capital aside for these types of loans. The Reserve Bank has previously deemed investor loans to be more risky for banks to have on their books. Although the upcoming capital increases for banks have now been postponed until July 2021 none of the banks will want to risk been unable to comply with these increased capital requirements. If the Reserve Bank is only proposing to lift the LVR restrictions on a “temporary” basis banks will have even less incentive to lend more to investors. The Reserve Bank will need to make significant concessions to the banks on the amounts of capital they are required to hold now and in the future otherwise this is nothing but window dressing.

The owner occupied space is a different subject but as others have said above bank servicing requirements and the new responsible lending guidelines in a post lockdown environment will mean that most banks will be hesitant to approve too many mortgages with high LVRs.
On 22 April 2020 at 4:40 pm LNF said:
LVR restrictions to be removed says RBNZ
Today Bank economists predicting a 15% drop in house value
What does anyone think the banks are going to do. If anyone thinks that Banks will rush from next week to provide mass 95% loans then please email me. I have a beautiful bridge for sale
On 23 April 2020 at 9:57 pm MS642 said:
The short term issue will be nailing down property values just as it was during the GFC. Sales have come to a grinding halt so it will be very difficult, at least in the short term, to know where values lie & what reliance lenders can put on proffered values. I'm picking that the investors will sit on the sideline for the time being unless they are well capitalized.
On 24 April 2020 at 12:50 pm gupta said:

Need government intervention……………

The banks do have appetite but they love to keep in safest place. Government is trying to achieve great escape but…..
Last month OCR reduced and where can we see the impact?
Most of benefit is absorbed by banks and a little is in our hands. BETTER direct credit to consumers bank accounts than passing through banks.
LVR was 95% for all residential properties years back - owner occupied or investment purpose.
Housing is our one of few industries in the country and need to develop to save country, people and our economic development. Jacinda And New Zealand has achieved highest level of success and fame in this crisis and everyone should be dedicated to help and give a hand in her plans.

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Lender Flt 1yr 2yr 3yr
AIA 5.35 4.49 5.25 5.55
ANZ 5.54 5.15 5.85 6.15
ANZ Blueprint to Build 2.78 - - -
ANZ Special - 4.55 5.25 5.55
ASB Bank 5.35 4.49 5.25 5.55
Avanti Finance 5.45 - - -
Basecorp Finance 6.45 - - -
Bluestone 5.29 7.49 7.59 -
BNZ - Classic - 4.55 5.25 5.45
BNZ - Mortgage One 5.55 - - -
BNZ - Rapid Repay 5.55 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 5.55 5.35 5.94 5.99
BNZ - TotalMoney 5.55 - - -
CFML Loans 6.45 - - -
China Construction Bank 5.50 5.40 6.14 6.40
China Construction Bank Special - 4.45 5.19 5.45
Credit Union Auckland 5.95 - - -
First Credit Union Special 5.85 4.70 5.20 -
Heartland Bank - Online 4.00 3.85 4.70 4.84
Heretaunga Building Society 5.95 4.80 5.50 -
HSBC Premier 5.49 4.39 5.15 5.39
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.25 4.29 5.09 5.35
Kainga Ora 5.43 4.57 5.58 5.85
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 5.00 5.55 6.19 6.39
Kiwibank - Offset 5.00 - - -
Kiwibank Special 5.00 4.55 5.19 5.39
Liberty 4.84 - - -
Nelson Building Society 5.95 4.95 5.85 -
Pepper Essential 3.44 - - -
Resimac 4.59 5.60 6.16 6.29
Lender Flt 1yr 2yr 3yr
SBS Bank 5.29 4.69 5.35 5.49
SBS Bank Special - 4.19 4.85 4.99
Select Home Loans 4.09 4.29 4.86 5.09
The Co-operative Bank - First Home Special - 4.19 - -
The Co-operative Bank - Owner Occ 5.45 4.29 5.19 5.45
The Co-operative Bank - Standard 5.45 4.79 5.69 5.95
TSB Bank 5.59 5.14 ▼5.79 6.15
TSB Special 4.79 4.34 ▼4.99 5.35
Unity 5.65 4.80 5.50 -
Wairarapa Building Society 5.24 4.55 5.20 -
Westpac 5.54 5.09 5.79 6.09
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.54 - - -
Westpac Special - 4.49 5.19 5.49
Median 5.45 4.55 5.25 5.52

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