Reserve Bank calls for changes to investor LVRs

The Reserve Bank has today released a consultation paper proposing changes to loan-to-value restrictions (LVRs) to further reduce risks to financial stability arising from the current boom in house prices.

“The banking system is heavily exposed to the property market with residential mortgages making up 55% of banking system assets. Investor lending has been increasing rapidly and is a significant contributing factor to the current market strength.  The proposed restrictions recognise the higher risks associated with such lending,” Governor Graeme Wheeler said.

Under the proposed new restrictions:

•  No more than 5% of bank lending to residential property investors across New Zealand would be permitted with an LVR of greater than 60% (i.e. a deposit of less than 40%).
• No more than 10% of lending to owner-occupiers across New Zealand would be permitted with an LVR of greater than 80% (i.e. a deposit of less than 20%).
• Loans that are exempt from the existing LVR restrictions, including loans to construct new dwellings, would continue to be exempt.