RBNZ scraps LVR

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Via RBNZ:

The Reserve Bank is proposing the removal of mortgage loan-to-value ratio (LVR) restrictions in line with the Bank’s financial stability mandate.

The proposal is in response to the economic downturn caused by the COVID-19 pandemic. The LVR requirements are one of the macro-prudential tools that the Reserve Bank has available to respond to cyclical pressures.

“LVRs were introduced as a macro-prudential financial stability tool in October 2013 and have been adjusted over time. Adjusting the use and calibration of macro-prudential tools in response to economic conditions is how they are intended to be used”, Deputy Governor and General Manager of Financial Stability Geoff Bascand says.

This move will help banks to keep lending to support customers, including with mortgage deferrals.

As is normal for changes to macro-prudential measures, we are consulting on this proposal. In this case, consultation is open for seven days. Feedback will be collated from industry stakeholders over this period and a decision will be made promptly after that.

The change, if effected, will be made via a change in bank Conditions of Registration. If the decision is made to remove the restrictions, the Reserve Bank will monitor lending activity and feedback from retail banks over the next 12 months as the economic impact of the COVID-19 pandemic becomes clearer. After that period, we will review whether to reinstate LVR restrictions. This provides banks and customers certainty that no further changes to LVR requirements will be made for at least one year.

It doesn’t ease lending standards but for those who do qualify, it’s BIG mortgages for all!

Doesn’t make much sense to me but, then, New Zealand is very small.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.