LVR restrictions set to ease come June 1

Eighteen months after tightening the country’s mortgage market, the Reserve Bank of New Zealand (RBNZ) will allow more owner-occupiers and investors to qualify for loans with high loan-to-value ratios (LVRs), as of 1 June.

The current LVR settings were tightened in November 2021, when the RBNZ wanted to reduce “risky mortgage lending” because it believed risks in the financial system were elevated.

According to the RBNZ, those changes made the financial system more resilient, which has been evident in the past year as property prices have fallen without widespread impacts to financial stability.

Now, the RBNZ believes the LVR settings should be loosened.

“Our assessment is that the risks to financial stability posed by high-LVR lending have reduced to a level where the current restrictions may be unnecessarily reducing efficiency. In particular, impeding the provision of credit to some otherwise creditworthy borrowers, which is not proportionate to the level of risk that we see,” Deputy Governor Christian Hawkesby said

How the LVR restrictions would be changed

As of 1 June, the RBNZ will update the limits for banks’ high-LVR lending:

• For owner-occupiers, no more than 15% of new loans (up from 10%) can have an LVR above 80%
• For investors, no more than 5% of new loans can have an LVR above 65% (up from 60%)

The reason the RBNZ has tighter restrictions for investment loans is because they’re deemed to be riskier than owner-occupied loans.

Why the LVR restrictions exist

Here, in the RBNZ’s own words, is why banks are subjected to LVR restrictions:

“LVR restrictions support the stability of the housing market and help reduce the risk of a sharp correction in house prices. They also provide an additional buffer if a housing downturn were to occur, which would particularly affect highly indebted home owners and investors.

“Housing lending makes up about half of bank lending in New Zealand, and a home is usually the single largest asset that a family owns. Property is also a significant part of many New Zealanders' investment portfolios.

“A sharp correction in house prices is therefore a significant risk to the financial system, which could negatively impact the functioning of the banking system and cause lasting damage to households and the wider economy.”

Contact me for a home loan pre-approval

The RBNZ’s reforms are encouraging, because they will allow some New Zealanders to enter the market sooner than expected.

Regardless, my role as your mortgage adviser remains unchanged – which is to help you get a great loan that is suitable for your financial circumstances.

Get in touch if you’d like me to help you finance a property, whether it’s your own home or an investment. My strong recommendation is to get a pre-approval before you start your house hunt, so you know how much you can spend.