The Reserve Bank is planning to relax lending restrictions that could help more first-home buyers get into the property market.
It's proposed from December 1 that banks will be able to lend to more people with smaller deposits, the central bank announced earlier today.
Under the planned changes, banks would be allowed to give 25% of their new home loans to owner-occupiers with deposits of less than 20%, up from the existing 20% limit.
The Reserve Bank has also proposed allowing an increase in lending to property investors with deposits of less than 30%, going from 5 to 10% of new loans.
The changes follow the introduction of debt-to-income (DTI) restrictions last year, which the Reserve Bank says now allows the loan-to-value ratio (LVR) restrictions to be eased.
Reserve Bank acting assistant governor of financial stability Angus McGregor said the timing was right to loosen the rules.
"House prices are within our range of sustainable estimates. Growth in mortgage lending remains moderate and the share of high-risk lending is low," McGregor said.
"Easier loan-to-value ratio settings will give banks more flexibility to lend, improving market efficiency and access to credit, particularly for first home buyers."
He said the "looser default settings" were expected to "be in place most of the time, except for when risks are particularly elevated".
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The debt-to-income restrictions, which limit risky lending, will remain unchanged.
"We have also reviewed our debt-to-income restrictions and decided to keep settings unchanged. They remain calibrated to limit high-risk lending in housing upswings and periods of low interest rates, without the need for adjustment," McGregor said.
Responsibility for reviewing the loan-to-value ratio and debt-to-income settings will sit with a new financial policy committee from next year.
A Reserve Bank spokesperson said the committee would review settings at least annually and can adjust if risks become elevated.
Mortgage adviser Sara Hartigan said the Reserve Bank's latest move is about preventing unmanageable debt. (Source: Breakfast)
Finance Minister Nicola Willis welcomed the move to ease LVR rules, saying it would help Kiwis "get a foot on the property ladder".
"Home ownership is part of the Kiwi dream," Willis said.
"Relaxing the restrictions on the amounts banks can lend will make it easier for Kiwis to get a foot on the property ladder."
The Property Investors Federation also said the changes were a positive move.
Advocacy manager Matt Ball said: "The proposed changes are targeted and could make a difference to first home buyers with less of a deposit, and to small-scale ‘mum and dad’ property investors – which is to say, most investors.
"It’s a pragmatic change that will help people into homes and increase rental supply, but because it is targeted, it won’t cause a demand-led spike in property prices."
The Reserve Bank would consult with banks on the changes to their conditions of registration over the next two weeks.
Willis said she looked forward to hearing the outcome of the consultation.
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