MNI BRIEF: RBNZ To Ease LVR Restrictions On Banks

The Reserve Bank of New Zealand wants to ease mortgage loan-to-value restriction limits from June 1 to 15% for loans with LVR above 80% for owner occupiers from 10% and 5% for loans with LVR above 65% for investors from 60%.

“Our assessment is that the risks to financial stability posed by high-LVR lending have reduced to a level where the current restrictions may be unnecessarily reducing efficiency,” said Deputy Governor Christian Hawkesby.

The RBNZ believes national house prices have fallen towards a level more consistent with medium-term fundamentals. “While house prices may continue to fall, the probability of a further large correction in house prices has reduced,” the Bank said in a statement.

The RBNZ surprised markets earlier in the month with a 50bp hike, lifting the cash rate to 5.25% (see: MNI RBNZ WATCH: 50 Basis Point Hike Despite Slowing Economy). The Bank will publish its May 2023 Financial Stability Report, giving greater insight into the country’s economy, on May 3. The overnight index swaps market has priced in a high chance of another 25bp hike at the May 24 meeting, with cuts expect before year end.

The RBNZ will consult banks on the implementation of the LVR proposal over the next two weeks.