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Financial Stability Strengthened By Firmer LVR Restrictions

The Reserve Bank of New Zealand - Te Pūtea Matua is putting in place more stringent loan-to-value ratio (LVR) restrictions to reduce the risks to financial stability caused by high-risk mortgage lending. The LVR restrictions do not apply to new residential construction.

LVR restrictions were removed in April 2020 to ensure they didn’t interfere with COVID-19 policy responses aimed at promoting cash flow and confidence, Reserve Bank Deputy Governor and General Manager of Financial Stability Geoff Bascand says.

“Since then, in part due to the success of the health and economic policy responses, we have witnessed a rapid acceleration in the housing market, with new records being set for the national median price, and new mortgage lending continuing at a strong pace.

“We are 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.

“A growing number of highly indebted borrowers, especially investors, are now financially vulnerable to house price corrections and disruptions to their ability to service the debt. 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 Bank’s December LVR consultation, resulting in more restrictive policy settings being decided on. As of 1 March the Reserve Bank will be reinstating LVR restrictions at the same level they were set at prior to the onset of COVID-19, with a further tightening of investors’ restrictions taking effect on 1 May. The two step process is necessitated by mortgage lenders’ operational capabilities.”

From 1 March 2021:

  • LVR restrictions for owner-occupiers will be reinstated to a maximum of 20% of new lending at LVRs above 80%.
  • LVR restrictions for investors will be reinstated to a maximum of 5% of new lending at LVRs above 70%.

From 1 May 2021:

  • LVR restrictions for owner-occupiers will remain at a maximum of 20% of new lending at LVRs above 80%.
  • LVR restrictions for investors will be further raised to a maximum of 5% of new lending at LVRs above 60%.

“We expect mortgage lenders to respect the 60/5 investor restrictions immediately with all new loan approvals, to ensure that their mortgage lending is consistent with our policy decision,” Mr Bascand says.

A public consultation on the proposal to reinstate LVR restrictions was carried out from 8 December 2020 to 22 January 2021. A full Summary of Submissions will be released alongside a Regulatory Impact Assessment (RIA) in due course.

More information:


  • LVR restrictions are one of the Reserve Bank’s tools designed to reduce the risk associated with ‘boom-bust’ cycles, which helps us to meet our statutory purpose of ‘promoting the maintenance of a sound and efficient financial system’. LVR restrictions set a ceiling on the percentage of new mortgage lending that banks can offer at high LVRs.
  • Reinstating the LVR policy will also reinstate the existing exemptions applying to the LVR restrictions for both owner-occupier and investor mortgages, including:
    • A new build exemption where the borrower commits to the purchase at an early stage of construction or buys the residence (within six months of completion) from the developer;
    • Kāinga Ora’s First Home Loans scheme (formerly Welcome Home Loans), for low deposit borrowers to buy their first home; and,
    • Loans for remediation required to bring a residence up to new building codes, or to comply with new rental property standards (for example, installing insulation).
  • The two step staged implementation of the LVR restriction increases will allow banks to manage their pipeline of loan applications that have been approved but not yet settled.
  • On 24 November 2020 the Reserve Bank received a letter from the Minister of Finance seeking our views on ways we can work together to address the Minister’s concerns regarding rising house prices. Reserve Bank Governor Adrian Orr responded to this letter on 9 December and we remain committed to engaging with the Minister to utilise the unique role of the Reserve Bank in relation to the complex and multifaceted drivers of the housing market.

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