Banks will be allowed to write more low-deposit mortgages to property investors and home buyers as the RBNZ relaxes its loan-to-value ratio rules
The Reserve Bank (RBNZ) says it will ease mortgage lending limits from December 1, allowing more property buyers to borrow a larger share of a home’s value.
Angus McGregor, RBNZ acting Assistant Governor of Financial Stability, said the central bank had been reviewing its approach to loan-to-value ratio (LVR) restrictions over the past year.
“We concluded that the introduction of debt-to-income (DTI) restrictions last year means LVR settings can be less restrictive on average. This includes looser default settings that we expect will be in place most of the time, except for when risks are particularly elevated,” he said.
Banks will be allowed to lend more to low-deposit borrowers, with the share of new lending to owner-occupiers with under 20% deposits rising to 25% from 20%, and to investors with under 30% deposits rising to 10% from 5%.
McGregor said these settings will give banks more flexibility to lend and improve access to credit for investors and first home buyers.
“Now is an appropriate time to move to the new default settings. 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 said.
DTI restrictions will remain unchanged to limit high-risk lending during housing market upswings and periods of low interest rates. McGregor said these act as a guardrail to contain the severity of housing market corrections.
These policy settings will be the responsibility of the soon-to-be established RBNZ Financial Policy Committee from next year, and will be reviewed annually or when risks emerge.
Finance Minister Nicola Willis welcomed the change, saying it would make it easier for first home buyers to get into the market.
“Relaxing the restrictions on the amounts banks can lend will make it easier for Kiwis to get a foot on the property ladder,” she said in a press release.