Reserve Bank to ease LVR restrictions

Reserve Bank to ease LVR restrictions

The RBNZ announced today that as of 1 January 2019,

  • No more than 15 percent (currently 10 percent) of each bank’s new mortgage lending to owner occupiers can be at LVRs of more than 80 percent. An 80 percent LVR means the borrower needs to come up with a 20% deposit.
  • No more than 5 percent of each bank’s new mortgage lending to residential property investors can be at LVRs of more than 65 percent (currently 60 percent). A 65% LVR means the borrower needs to come up with a 35% deposit.

Even with the easing of restrictions, it is reported that banks are still continuing to maintain strict lending standards in light of the economy and to reduce their risk exposure in the current environment where household debt is still at historic highs.

As for the impact on the housing market, the effect is subdued. The two factors impacting house prices are demand and supply. The main factors affecting demand is population growth and availability of credit. Population growth has been subdued driven by the immigration reforms and the “ban” on foreign buyers. Availability of credit is also constrained by the banks assessment of risk in the current environment. Given the geopolitical uncertainties and the trade war between China and the US, banks are cautious about overlending and have tighten their lending criteria in order to manage their risk. Supply is likely to steadily come into the market with the Kiwibuild programs and housing projects that were started in the last 2 years and are coming into completion. The overall impact is likely to see low growth rate in housing prices.

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