Changes to mortgage loan-to-value ratio (LVR) restrictions confirmed!

Changes to mortgage loan-to-value ratio (LVR) restrictions confirmed!

The purpose of LVR restrictions is to safeguard financial stability by limiting the issuance of high-risk mortgages. This measure aims to mitigate the impact and severity of corrections in the housing market by strengthening the resilience of both the banking system and households. Gah! But what does that mean in PLAIN ENGLISH?!

Well essentially, it means that banks or lenders can only lend a certain amount of money for housing to a certain demographic of borrowers who may carry a bit more risk.  By easing the restrictions it should make it easier for new buyers to get on the property ladder and/or allow current borrowers to refinance with a bit more ease.

In late April 2023, feedback was solicited from registered banks regarding the proposed implementation of these restrictions. After carefully reviewing the feedback received, the decision has been made to proceed with a relaxation of the restrictions.

Deputy Governor Christian Hawkesby expressed gratitude to industry participants for their valuable input and constructive feedback. He emphasized that the decision to ease the restrictions is grounded in the assessment that the risks associated with high-LVR lending have diminished to a point where the existing restrictions may be impeding efficiency unnecessarily.  These LVR restrictions have been in place since November 2021 and numerous borrowers with good credit have faced obstacles in securing financing due to the LVR limits implemented during the pandemic to mitigate risks for banks.

LVR restrictions impose a "speed limit" on the amount of new low-deposit lending banks can engage in, measuring the ratio of a bank's loan amount against the value of the mortgaged property.

As of 1st June 2023, the Reserve Bank has confirmed new LVR limits, so what are they?

New LVR Limits:

Prior to 1st June 2023:

For owner occupiers, a 10% limit on loans with LVR above 80%.
For investors, a 5% limit on loans with LVR above 60%.
Post 1st June 2023:

For owner occupiers, a 15% limit on loans with LVR above 80%.
For investors, a 5% limit on loans with LVR above 65%.

The restrictions implemented in November 2021 have bolstered the resilience of the New Zealand financial system. This has been evident over the past year as house prices have declined without causing significant adverse effects on financial stability. Consequently, our banks are now able to facilitate increased lending for both owner occupiers and investors, presenting an excellent opportunity for those who were previously constrained by the LVR restrictions.

If you would like to understand how these changes impact your borrowing capacity, please contact us today to receive expert advice tailored to your situation.




Friday, 2 June 2023