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    RBNZ to Reinstate Loan-to-Value Ratio Restrictions

    February 09, 2021

    RBNZ is putting in place more stringent loan-to-value ratio (LVR) restrictions to reduce financial stability risks posed by high-risk mortgage lending. RBNZ will reinstate, as of March 01, 2021, LVR restrictions at the same level they were set at prior to the onset of COVID-19 pandemic, with tighter restrictions taking effect on May 01, 2021. According to Geoff Bascand, the RBNZ Deputy Governor and General Manager of Financial Stability, this two-step process has been put in place in line with the operational capabilities of mortgage lenders. Meanwhile, RBNZ has also made available the frequently asked questions (FAQs) on LVR restrictions.

    RBNZ announced that, from March 01, 2021, LVR restrictions for owner-occupiers will be reinstated to a maximum of 20% of the new lending at LVRs above 80%. In addition, from March 01, 2021, LVR restrictions for investors will be reinstated to a maximum of 5% of the new lending at LVR above 70%. Then, from May 01, 2021, LVR restrictions for owner-occupiers will remain at a maximum of 20% of new lending at LVRs above 80%; also, LVR restrictions for investors will be further raised to a maximum of 5% of new lending at LVRs above 60%. The LVR restrictions do not apply to new residential construction.

    The RBNZ Deputy Governor said that LVR restrictions were removed in April 2020 to ensure that they did not interfere with the COVID-19 policy responses aimed at promoting cash flow and confidence. Since then, a rapid acceleration in the housing market has been witnessed. RBNZ is now concerned about the risk a sharp correction in the housing market poses for financial stability. There is evidence of a speculative dynamic emerging with many buyers becoming highly leveraged. Highly leveraged property owners, in particular investors, are more prone to rapid “fire sales” that potentially amplify any downturn. These financial stability risks exceed the situation at the time of the LVR consultation launched in December 2020, which has resulted in more restrictive policy settings. The consultation on the proposal to reinstate LVR restrictions was undertaken from December 08, 2020 to January 22, 2021. In due course, a full summary of submissions will be released, along with a Regulatory Impact Assessment.


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    Keywords: Asia Pacific, New Zealand, Banking, COVID-19, Regulatory Capital, Credit Risk, Basel, LVR, RRE, RBNZ

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