RBNZ confirms plans to loosen LVR restrictions
The Reserve Bank of New Zealand (RBNZ) has confirmed it will ease loan-to-value ratio (LVR) restrictions on home loans from 1 December, following a period of consultation on its proposed changes. The shift reflects the RBNZ’s view that last year’s introduction of debt-to-income (DTI) rules has reduced the need for tight LVR settings across the board.
The combination of both tools means LVR rules can now operate at more relaxed levels under normal market conditions, according to the RBNZ. “We have concluded that the introduction of debt-to-income restrictions last year means LVR settings can be less restrictive on average. This includes looser default settings that we expect will be in place most of the time, except for when risks are particularly elevated.”
What is changing on 1 December
Under the new rules, banks will be able to issue a greater proportion of low-deposit loans to both owner-occupiers and investors. The updated settings are:
- For owner-occupiers, the limit on the share of new lending allowed with an LVR above 80% will increase from 20% to 25%.
- For investors, the limit on the share of new lending allowed with an LVR above 70% will increase from 5% to 10%.
These changes are expected to give borrowers more flexibility while keeping overall lending risk in check through the DTI framework.
The RBNZ said it will continue to monitor market conditions and the effects of the relaxed restrictions. “The new Financial Policy Committee will review LVR settings at least annually and can adjust if risks become elevated.”
What this means for borrowers
Looser LVR rules should make it easier for some buyers to access finance, particularly those with smaller deposits or investors aiming to expand their portfolios. However, borrowers will still need to meet bank affordability tests, including DTI criteria.
If you are thinking about buying soon, I can help you understand how these changes may affect your loan options and whether you qualify under the new settings.