MNI: RBNZ to reinstate LVRs as housing risk grows

The Reserve Bank of New Zealand will reinstate loan to value ratio (LVR) restrictions for housing loans early next year in response to the country's surging property market.

The move was outlined in today's Financial Stability Report, which acknowledged the risk posed by high leverage loans in the housing market "if house prices fall sharply or unemployment rises."

The RBNZ signaled last month that it would review the LVR situation next year, but today's announcement of a definite move is a sign that the central bank is becoming concerned about an overheated housing market with prices at record highs.

This week, NZ Finance Minister Grant Robertson explicitly asked the RBNZ to address the housing market as part of its monetary policy, which prompted an open letter from RBNZ Governor Adrian Orr.

In his letter, Orr assured Robertson that the central bank gives consideration to the potential impact of monetary policy and financial stability from financial assets, including house prices.