Reserve Bank to ease loan-to-value ratio limits from next month

Fri, May 26
Deputy Governor of the Reserve Bank Christian Hawkesby says the risks to bank finances from low deposit lending have reduced.

The Reserve Bank is going ahead with loosening restrictions on bank property lending.

The Reserve Bank (RBNZ) has confirmed that from the start of June it will ease the loan-to-value ratio (LVR) limits on lending to owner-occupier borrowers with less than a 20% deposit, as well as allow property investors to have a lower deposit.

Deputy Governor Christian Hawkesby said the risks to bank finances from low deposit lending had reduced and the current limits, which were put in place in November 2021 at the height of the pandemic, were now too tight and may be blocking creditworthy borrowers from borrowing.

The restrictions built resilience in the financial system, which had been strong in the past year amid falling house prices, Hawkesby said.

"It is important to reiterate our assessment that the risks to financial stability posed by high-LVR lending have reduced to a level where we believe the current restrictions may be unnecessarily reducing efficiency," he said.

From 1 June, the LVR restrictions will be:

  • 15 percent limit (currently 10 percent) for loans with LVR above 80 percent for owner occupiers, and
  • 5 percent limit for loans with LVR above 65 percent (currently 60 percent) for investors.

The property market has fallen about 17% since the peak in late 2021, with expectations prices have further to fall, although the rate of decline is slowing.

In its latest monetary policy statement, the RBNZ said house prices had fallen to a more sustainable level.