MNI BRIEF: RBNZ Consults On Tighter Home Lending Rules

The Reserve Bank of New Zealand is consulting with financial market players on a proposal to further tighten the number of high Loan to Value Ratios (LVRs) on housing loans as it looks to cool the property market.

The RBNZ is proposing to target loans with an LVR of 80%, where homebuyers' equity is 20% of the loan amount. Currently, banks can have 20% of new loans to owner occupiers in this category, but the RBNZ is proposing to bring this down to 10%.

The proposal is designed to reduce the number of risky loans in a housing market the RBNZ says has become "unsustainable" as it moves into a tightening cycle, though delayed, with house prices up 30% in the past year.

"The proposed tightening of LVR restrictions will over time help reduce the number of highly-leveraged borrowers and help to build resilience in the financial system," said RBNZ Deputy Governor Geoff Bascand.

During the pandemic, the bank lifted LVRs as part of its accommodative policy which aimed to help the NZ economy, and they were reinstated earlier this year.