Reserve Bank considers removing LVR restrictions

by Ksenia Stepanova21 Apr 2020

The Reserve Bank of New Zealand has proposed removing mortgage loan-to-value ratio (LVR) restrictions to allow banks to carry on lending, and to help them support their existing customers.

The proposal has been put forward in response to the economic downturn caused by the outbreak of COVID-19, with deputy governor and general manager of financial stability Geoff Bascand saying that LVRs are one of the tools available to the Reserve Bank to respond to economic pressure.

Currently, banks have a 20% limit on the amount of high-LVR (a deposit of less than 20%) lending that they are allowed to provide to owner-occupiers, and a 5% limit on high-LVR (a deposit of less than 30%) lending they can provide to investors. These limits were last relaxed in April 2018.

The Reserve Bank is currently discussing the option and taking feedback from industry stakeholders, and will be consulting on it for seven days.

“LVRs were introduced as a macro-prudential financial stability tool in October 2013 and have been adjusted over time,” deputy governor Geoff Bascand said.

“Adjusting the use and calibration of macro-prudential tools in response to economic conditions is how they are intended to be used.”

If the restrictions are removed, the Reserve Bank says it will monitor lending activity for twelve months and get feedback from the retail banks, while also assessing the ongoing impact of COVID-19 on the economy. Once the twelve months is up, it will reassess and consider whether to reinstate the restrictions.

“This provides banks and customers with certainty that no further changes to LVR requirements will be made for at least one year,” the Reserve Bank stated.

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