The Reserve Bank of New Zealand has proposed to ease mortgage loan-to-value ratio (LVR) restrictions to improve efficiency and support the housing market.
The current LVR restrictions were introduced in November 2021 after national house prices soared by around one third over the pandemic.
Since then, house prices nationally have fallen by around 17% from their peak:
With house prices falling “towards a level that is more consistent with medium-term fundamentals” and “the probability of a further large correction in house prices reduced”, the Reserve Bank has proposed to ease LVR restrictions from 1 June 2023, from:
- 10% limit for loans with LVR above 80% for owner occupiers; and
- 5% limit for loans with LVR above 60% for investors.
To:
- 15% limit for loans with LVR above 80% for owner occupiers; and
- 5% limit for loans with LVR above 65% for investors.
Commenting on the proposal, Deputy Governor Christian Hawkesby said “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”.
The proposed LVR changes follow a 36% collapse in new mortgage originations in the year to March, alongside a 15% decline in home sales:
If implemented, the Reserve Bank’s LVR changes would be positive for New Zealand house prices given they would increase borrowing capacity, enabling home buyers to pay more for homes.
Given the Reserve Bank is also near the top of its interest rate hiking cycle, we are likely approaching the end of the nation’s house price crash.
