MNI: RBNZ brings back LVRs from March

The Reserve Bank of New Zealand has responded to the booming housing market with plans to re-introduce loan-to-value (LVR) restrictions on high-risk lending from March next year.

The announcement brings forward the RBNZ's plans for LVR's following earlier comments that they would only be reconsidered next year.

However, the surging housing market – which has risen around 20% in the ultra low interest rate environment this year – has prompted fears about financial stability and prompted the central bank to act.

Today, the RBNZ said it was seeking views from market participants on the re-introduction of LVRs, which were suspended in April this year.

The RBNZ statement said the bank was "concerned that increases in highly-leveraged borrowing, if continued, could lead to emerging risks to financial stability."

"When LVR restrictions were removed in April, we said they would remain off for a period of at least 12 months to help support the economy. However, since then the economy has performed better than expected, and the housing market has proved resilient," said Reserve Bank Deputy Governor and General Manager of Financial Stability Geoff Bascand.

"In addition, lending at higher LVRs has risen, particularly for investors, and there are signs that this trend is accelerating."

Bascand said the RBNZ was proposing to reinstate the LVR restrictions at the same level as prior to the onset of COVID-19, where a maximum of 20% of new lending is allowed at LVRs above 80% for owner-occupiers, and 5% of new lending at LVRs above 70% for investors.

The bank will announce its decision in February 2021 ahead of re-implementing LVRs in March.