RBNZ to Reinstate Loan-to-Value Ratio Restrictions
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.
Related Links
Keywords: Asia Pacific, New Zealand, Banking, COVID-19, Regulatory Capital, Credit Risk, Basel, LVR, RRE, RBNZ
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
PRA Offers Clarity on 2021 Benchmarking Exercise for Internal ModelsRelated Articles
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023
