The Reserve Bank yesterday announced that it is considering the removal of loan-to-value ratio (LVR) restrictions on mortgages to help New Zealand’s economy recover from COVID-19.

The move would enable banks to continue lending to customers in need of support, including mortgage repayment deferrals.

The Reserve Bank has confirmed it intends to remove LVR restrictions for a period of one year until 1 May, 2021.

Feedback from key stakeholders will be collected for seven days, with a final decision to be made shortly afterwards.

Please see below for further figures and commentary.

Figures

• A recent Finder survey of 2,250 New Zealanders found the average borrower owes $123,555 on their home loan.
• Banks are currently not permitted to lend more than 20% of their new loans to owner-occupiers with a deposit under 20%.
• They can also lend no more than 5% to investors with less than 30% equity in their property.
• Reserve Bank data shows that the value of new owner-occupier loans with LVR above 80% increased from $495 million in February 2019 to $562 million in February 2020.
• The value of investor loans with more than 70% LVR also increased from $354 million in February 2019 to $437 million in February 2020.

Commentary from Kevin McHugh, Finder’s publisher in New Zealand

• “LVR restrictions were initially put in place back in 2013 in an attempt to mitigate an overheating property market. But what we’re seeing now is quite the opposite.
• “Although buyer activity was strong during the first quarter of 2020, the market dropped to a nine-year low and sales volume fell nearly 5 percent after lockdown restrictions were announced.
• “By relaxing LVR restrictions, the Reserve Bank is hoping to offset this drop in buyer demand as a result of the coronavirus outbreak.
• “First home buyers will be able to get a foothold in the property market sooner, with a smaller deposit.
• “Banks can also continue to support customers in need of financial assistance during this time, including those with deferred repayments.
• “This will reduce the likelihood of people being forced to sell, and prevent a subsequent sharp drop in property prices,” McHugh said.

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