New Zealand announces mortgage restriction plans

The New Zealand Central Bank has announced that banks in the country will soon be limited in how much they can lend on low-deposit, high-value mortgages.

Mortgages in Auckland New Zealand

Mortgages in Auckland New Zealand

In an attempt to stem the country’s rapidly rising house prices, the Reserve Bank of New Zealand (RBNZ) yesterday stated that new lending rules will be imposed which will limit the amount of high loan-to-value ratio lending (LVR) that banks would be able to do – although independent lenders will remain unaffected by the changes.

“LVR restrictions on residential mortgage lending can help to dampen excessive house price growth in periods when credit growth is boosting housing demand beyond housing supply,” RBNZ deputy governor Grant Spencer said in a statement.

An ‘indicative’ illustration the Reserve Bank offers of how the scheme would work is that banks would be required to limit the proportion of loans with LVRs over 80 per cent (or deposits of less than 20 per cent ) to 12 per cent of new lending and LVRs over 90 per cent to 5 per cent of new lending.

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However, some economists remain unconvinced that tightening a bank’s lending ability will have any impact on the rising house prices in New Zealand.

“We expect the introduction of a speed limit on high-LVR lending will only have a modest impact on house prices, and we will continue to see continued housing market pressures over the coming year,” said ASB Bank economist Christina Leung.