Reserve Bank relieves some pressure on LVR’s

In October 2016 The Reserve Bank moved LVR’s (loan to value ration) restrictions on housing for investors to 40% deposit and home owners to 20% deposit across the country.  This was to try and ease the heated property market.  This did have an effect and now just over a year the Reserve Bank is now easing off these restrictions.

The Reserve Bank said

“In light of these developments, the Reserve Bank is undertaking a modest easing of the LVR restrictions. From 1 January 2018, the LVR restrictions will require that:

• No more than 15 percent (currently 10 percent) of each bank’s new mortgage lending to owner occupiers can be at LVRs of more than 80 percent.
• No more than 5 percent of each bank’s new mortgage lending to residential property investors can be at LVRs of more than 65 percent (currently 60 percent).

The Reserve Bank goes on to say that they will monitor the image of these changes and they will only make further LVR changes if financial stability risks remain contained.

Since 2013 LVR restrictions have been in place because of the rapid rise in house price inflation and increasing consumer debt.  The Reserve Bank felt it needed to improve the banking system and reduce the risk with high LVR loans.

The Reserve Bank has also completed a review of the bank director’s attestation regime.  Which they hope to have a new dashboard approach to quarterly bank disclosures.  Mr Bascand said they expect this to be ready next May.

The property market has already changed some time ago with the market cooling especially in Auckland.  The LVR changes won’t have a real effect on investors jumping back into the market but may help home buyers especially first time home owners get onto the property ladder with a lower deposit.

With the new Labour lead government announcing many property changes, especially to investors we may see the LVR restrictions being lapsed even more.  But this will depend on the state of the local and world economy.  This is new territory for everyone including the Reserve Bank so we will wait in anticipation. If there is to be any more changes in the LVR’s it won’t be until May 2018 when the next Financial Stability Report is released.