The RBNZ has decided to ease its limits on high-LVR lending
The Reserve Bank will loosen mortgage loan-to-value ratio restrictions from Dec. 1, giving banks more flexibility to lend.
The adjustment follows the RBNZ's review of its approach to LVR settings after introducing debt-to-income restrictions last year, which it says allows LVR rules to be less restrictive.
From Dec. 1, the limit on high-LVR lending to owner-occupiers will increase to 25% of new lending (up from 20%), while the investor limit will rise to 10% (up from 5%). Owner-occupiers can borrow more than 80% LVR within that allowance, while investors can exceed 70% LVR.
Acting assistant governor financial stability Angus McGregor said the easier settings would improve market efficiency and access to credit, particularly for first home buyers.
"Now is an appropriate time to move to the new default settings," McGregor said. "House prices are within our range of sustainable estimates. Growth in mortgage lending remains moderate and the share of high-risk lending is low."
He noted that DTI restrictions help underpin borrower resilience by acting as a guardrail for risky lending, and can help contain the severity of housing market corrections.
The impact on adviser clients
Craig Pope (pictured left), owner and mortgage adviser at Craig Pope Financial, said the changes may have limited practical effect.
"I would have liked to have seen it go higher for first home buyers, maybe to 30-35%," Pope told NZ Adviser. "I don't think this will have a big effect as banks are also using preventative levers to manage workloads as well."
He noted that first home buyers with live sale and purchase agreements haven't been significantly held back by current restrictions, though the changes may allow a few more buyers to get pre-approved more easily.
"Banks may reduce the minimum uncommitted monthly income required as a result of this change, which may allow some first home buyers more realistic budget and borrowing power," Pope said.
"I would like to see banks allowing more existing borrowers to get top ups when it pushes them over the 80% mark," he added. "At the moment most banks won't let them go from under 80% LVR to over 80% LVR."
On the investor side, Pope expects minimal impact. "The investment change will likely have little effect, most banks stick to that 70% max LVR," he said.
Jeff Royle (pictured right) at iLender thinks RBNZ have made the right choice to “take the edge off” lending limits, but agrees that the impact is likely to be limited. He said that lending should be assessed on a case by case basis, rather than on the basis of Reserve Bank restrictions.
“I also think they are playing a bit here and so there should be no limits for lenders as the DTI effectively curbs overall lending anyway,” Royle said. “By having both in play it just adds to the complexity of an application and process.
“Lenders should be able to lend based on merit. No lender approves a loan thinking there may be a default or putting the client in a poor financial position, common sense lending should prevail without regulator interference.”
DTI settings unchanged
The RBNZ said it had also reviewed DTI restrictions and decided to keep settings unchanged. The current settings limit lending at debt-to-income ratios above six times income for owner-occupiers and seven times for investors.
"They remain calibrated to limit high-risk lending in housing upswings and periods of low interest rates, without the need for adjustment," McGregor said.
The central bank will consult with banks on changes to their Conditions of Registration over the next two weeks.
From next year, responsibility for reviewing LVR and DTI settings will sit with the new Financial Policy Committee, which will review settings at least annually and can adjust if risks become elevated.
The changes come as the housing market shows signs of stabilisation following sharp interest rate cuts. The RBNZ has reduced the Official Cash Rate by 300 basis points to 2.5% since August 2024, with mortgage rates falling to their lowest levels in over two years.
