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Tighter LVR restrictions for owner-occupiers

The Reserve Bank plans to tighten LVR restrictions for owner-occupiers as it clamps down on low deposit home loans.

Friday, September 3rd 2021, 1:53PM 5 Comments

The RBNZ wants to limit lending to those with less than a 20% deposit to 10% of bank lending.

Currently, banks can lend up to 20% of their book at >80% LVR.

The move will force NZ lenders to limit loans to low deposit borrowers, impacting the first home buyer market.

Reserve Bank deputy governor Geoff Bascand said the proposal was prompted by soaring house prices.

"Our analysis indicates that house prices are above their sustainable level, and the risks of a housing market correction are continuing to rise. The proposed tightening of LVR restrictions will over time help reduce the number of highly leveraged borrowers and help to build resilience in the financial system."

The proposal comes after the central bank reimposed LVR restrictions, with tighter conditions for investors, in March. 

The central bank and Government also introduced a raft of lending reforms to curb investor activity, such as the removal of deductibility of interest for landlords, and an extension of the bright-line test.

Glen McLeod of Edge Mortgages hit out at the proposals, labelling them "extremely disappointing but not surprising".

"Everything being done completely misses the basic point of economics. Supply and demand. We have an under supply of housing which is making things unaffordable. Increase supply, reduce demand.

"The government has no ideas that are fresh to increase the supply and therefore have pushed the responsibility to the Reserve Bank."

In a consultation document, the RBNZ said the new rules could come into effect from October 1.

The Reserve Bank noted fears that the new rules could dampen first home buyer activity, but said they would also flatten house prices.

"We acknowledge that tightening LVR restrictions on owner-occupiers is likely to reduce the number of first home buyers with low deposits who are able to enter the housing market in the short term. However, reducing house price inflation will improve affordability for first-home buyers.

It pointed out that exemptions to LVR restrictions, such as the Kāinga Ora First Home Loan and loans for new builds, would "continue to support access for first-home buyers". 

A consultation document on the LVR changes can be found here.

Tags: house prices housing market LVR RBNZ Reserve Bank

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Comments from our readers

On 3 September 2021 at 3:32 pm JeffQV said:
Another smack in the mouth for first home buyers. RBNZ should be ashamed.
On 3 September 2021 at 5:19 pm Amused said:
It pointed out that exemptions to LVR restrictions, such as the Kāinga Ora First Home Loan and loans for new builds, would "continue to support access for first-home buyers".

Sigh......given that the house price caps for existing properties are only $625,000 in Auckland & $550,000 in Wellington (no point mentioning new build homes are higher because you are likely wasting your time finding a property at this level) the First Home Loan scheme offers next to no support for those first home buyers in these areas without access to a 20 percent deposit.

Can we get serious now? I mean seriously, can we just get serious? If this woolly minded academic reasoning from the Reserve Bank's upper echelon's continues pretty soon the average Kiwi's goal of owning their first home will slip from their grasp.

Respectfully it's time for a select committee on the competency of the current Reserve Bank management team. Even suggesting that the Kāinga Ora First Home Loan will counter lenders been forced now to reduce the number of their low deposit loans shows a breath-taking ignorance of where house prices in our two biggest cites now sit.

What on earth is going on up there at 2 The Terrace Wellington? Lots of big fat salaries been paid by the NZ taxpayer but we sure as heck aren't getting value for our money!

On 5 September 2021 at 1:06 pm Jonny Good Guy said:
RB are clowns
Labour said don't stop First home buyers this will reduce them by close to 50%
And so are labour
On 6 September 2021 at 9:53 am said:
Unfortunately, this policy will hurt the very people the government is supposed to help.
On 6 September 2021 at 11:10 am KiwiInvestor said:
The RBNZ fueled the fire of asset appreciation (property in this case) by injecting cheap money into the system, removing LVR's. Surely they must have known that rising property prices was going to be a consequence of this?

Their actions now will not just impact FHB's wanting to start, but the recent home buyers in the last 18 months, as their properties values drop and potentially put them into negative equity positions.

Doing this plus the other tools they are considering using (DTI's, Minimum Test Interest Rates) could drastically take the property market in the other direction, at a pace the RBNZ hasn't considered, which will impact the wider economy for the worse!

Just at a time when businesses are struggling. These prvileged few at the RBNZ are VERY MUCH out of touch with the rest of NZ and the wider economy.

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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

Last updated: 19 May 2022 10:42am

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