Reserve Bank to ease restrictions on loan to value ratio lending

The Reserve Bank has announced it will ease restrictions on loan to value ratio (LVR) lending.

Restrictions on loans given to applicants with a deposit less than 20 percent were introduced in October 2013 in response to rapid house price growth and a sharp increase in low-deposit lending.

Banks had been forced to only allow 15 percent of their lending to be made to owner-occupier buyers with less than 20 percent deposit, and only 5 percent of residential mortgage lending to property investors with less than 35 percent deposit.

That's all due to become a thing of the past soon, with the Reserve Bank announcing on Wednesday it will ease restrictions from January 2019.

From then on up to 20 percent of new mortgage loans will be given to owner-occupiers with a less than 20 percent deposit and up to 5 percent of residential mortgage lending to property investors with less than 30 percent deposit.

Infometrics chief economist Gareth Kiernan told The AM Show before the announcement on Wednesday that the move wasn't simply about inflation, but rather risky lending.

"House price inflation was never the be all and end all of the Reserve Bank," he said.

"They were more concerned that banks were throwing money out the door at the housing market assuming that house prices were going to keep going up, when there was always a risk that the housing market could turn."

 Sales have now flattened and growth has slowed, but Mr Kiernan said that may not be the case everywhere.

"Through most of 2018 it's been pretty soft, sales have been flat, house price inflation has been slow," he said.

"Just the last month or two we've seen sales picking up again and particularly outside of Auckland there's been a little bit of pickup in house price inflation."

First Home Buyer's Club spokesperson Lesley Harris told The AM Show the restriction lifting may not be all that's needed to get people into the market.

"It's possibly not a complete silver bullet, you know we have had low deposit lending around now for a couple of years, there's just restrictions on how much of that lending there is around," she said.