Further LVR tightening on the way for Kiwis

Lynn Grieveson

With New Zealand house prices continuing to soar but the Covid outbreak delaying an OCR hike, the Reserve Bank of New Zealand now wants to further reduce the amount of high Loan-to-Value Ratio (LVR) lending to all owner-occupiers, including first home buyers.

“We propose restricting the amount of lending banks can do above an LVR of 80 percent to 10 percent of all new loans to owner-occupiers, down from 20 percent at present,” Deputy Governor and General Manager for Financial Stability Geoff Bascand said on Friday.

“Our analysis indicates that house prices are above their sustainable level, and the risks of a housing market correction are continuing to rise,” Bascand said.

It’s a case of back to 2017 for the regulator. LVR restrictions were reinstated on both owner-occupiers and investors in March this year, with a further tightening in May. The Labour government has also brought in a package of tax policy changes aimed at dampening down property investment, including removing interest deductibility on rental property.

But despite a decline in new investor lending, house prices have continued to soar.

“Lending at LVRs greater than 80 percent has nearly tripled since 2017, with the large majority of this lending going to first-home buyers, followed by existing owner-occupiers. Although our stress testing indicates that the financial system is well-placed to weather shocks such as a downturn in the housing market, we are concerned about the potential future risks to economic and financial stability of allowing this higher risk borrowing to continue at its current rates,” Bascand said.

Consulation on the proposals is underway, ending 17 September. The RBNZ hopes to install the new LVR settings from October 1.

“Given the heightened COVID-19 alert levels, we are open to feedback from banks on the feasibility of the proposed timeframe,” the RBNZ added.