Reserve Bank of New Zealand States Home Loan Curbs Are Taking Effect

New regulations implemented in October have restricted banks from offering loans that exceed 80% of a property’s value, and recent data from the Reserve Bank of New Zealand indicates that these measures are having a noticeable impact.

In October, loans with a high loan-to-value ratio (LVR) of more than 80% accounted for only 12.8% of new lending commitments, a significant decrease from 25.5% in September and 26.5% in August.

These LVR regulations have been introduced to help stabilize rapidly rising house prices, which can exacerbate inflationary pressures in an economy still recovering from the aftermath of the Christchurch earthquake in 2011 and facing a shortage of affordable housing in cities like Auckland.

According to the new rules, banks are only allowed to issue 10% of their total new mortgage lending with an LVR above 80%.

Grant Spencer, the deputy governor of the Reserve Bank, commented that the decline in high-LVR lending is expected to mitigate the risks of a sharp decline in house prices within an already inflated housing market. He also anticipates that the regulations will have a more pronounced effect once banks process pre-approvals established before the rules took effect.

The Reserve Bank of New Zealand has stated that it will regularly release data regarding these loan limits on a monthly basis.