Loan-to-value restrictions back in from March - Reserve Bank

Subject to final consultation, LVR limits will restrict high-risk lending, particularly to property investors
Subject to final consultation, LVR limits will restrict high-risk lending, particularly to property investors Photo credit: Getty.

Loan-to-value ratio limits will be reintroduced from March next year, the Reserve Bank has announced.

In a six-monthly Financial Stability Report released on Wednesday, the Reserve Bank confirmed that subject to final consultation, it intends to restore loan-to-value ratio (LVR) restrictions to previous levels from March 1, 2021.

LVRs restrict how much banks can lend to low-deposit borrowers. For household borrowers (owner-occupied properties), the amount of new bank lending at LVRs greater than 80 percent (i.e. for deposits less than 20 percent) will be restricted to 20 percent of new lending. 

For property investors, up to 5 percent of new bank lending will be at LVRs greater than 70 percent (i.e. for deposits less than 30 percent).

"At present, lending by most banks to owner-occupiers remains within the previous LVR speed limits, and hence reinstating the restrictions is expected to predominantly affect investors instead of owner-occupiers," the bank said in the report.

The decision comes as no surprise. In a monetary policy statement on November 1, the Reserve Bank had indicated LVRs would be reinstated.

It said introducing LVR restrictions would require a two-to-three month lead time.  But the major banks (ASB, ANZ and BNZ) have already moved to reintroduce them. 

Westpac confirmed to Newshub the bank had never changed its LVR settings.

"We are continuing to take a responsible approach to our lending practices and credit risk. Our lending criteria remains the same as it did when the RBNZ's previous LVR 'speed limit' restrictions were in place," a Westpac spokesperson said.

On November 12, ASB said that if existing levels of investor demand were to continue, it could lead the country down an unsustainable path. The bank was moving to increase minimum deposit requirements for property investors immediately.

"The number of applications we’re receiving is at an all-time high, up 70 percent on this time last year, and while the proportion of first home lending is up, we have observed since COVID-19 a rapid increase in lending for investors, ASB CEO Vittoria Shortt said.

BNZ and ANZ plan to reintroduce LVR restrictions for property investors from December 7, also requiring a minimum deposit of 30 percent. On Wednesday, Kiwibank confirmed it would also reintroduce the restrictions, effective from the same day.

"At this point the change will only affect new home lending from residential investors. Lending to owner-occupier customers will remain as-is for the time being, ANZ spokesperson Stefan Herrick said.

"We have the ability to lend at more than 80 percent LVR to some customers, but we require them to have strong uncommitted monthly income," Herrick added.   

The Reserve Bank will consult on the LVR restrictions in December, which would see LVR restrictions back in from March 1.