The Reserve Bank of New Zealand (RBNZ) has announced plans to roll back home lending restrictions in its semi-annual Financial Stability Report released this morning.
The changes will ease the minimum requirements around loan-to-value (LVR) ratios for both owner-occupier and investor loans.
Here are the revisions outlined by the RBNZ, which will take effect from January 1 next year:
• No more than 15 per cent (currently 10 per cent) of each bank’s new mortgage lending to owner occupiers can be at LVRs of more than 80 per cent.
• No more than 5 per cent of each bank’s new mortgage lending to residential property investors can be at LVRs of more than 65 per cent (currently 60 per cent).
So from January 1, 2018, New Zealand lenders will be able to modestly increase lending to owner-occupiers who have a deposit of less than 20% of the homes value.
While for a small number of investors (5%), the minimum deposit requirement has been reduced to 35% of a home’s value, down from 40%.
“Over the past six months, pressures in the housing market have continued to moderate due to the tightening of LVR restrictions in October 2016, a more general firming of bank lending standards and an increase in mortgage interest rates in early 2017,” the RBNZ said.
“The Bank will monitor the impact of these changes and will only make further LVR adjustments if financial stability risks remain contained. A cautious approach will reduce the risk of resurgence in the housing market or deterioration in lending standards.”
The easing of lending restrictions in New Zealand’s housing market are in contrast to Australia, where bank regulator APRA introduced limits on interest-only lending in April in an effort to curb financial stability risk.
The flow-on effects from APRA’s restrictions have started to become evident in the second half of the year, with house prices in Sydney and Melbourne showing recent signs of cooling.
However, domestic lending restrictions appear to be far less strict than across the Tasman.
For example, as part of APRA’s interest-only restrictions earlier this year, the regulator advised that banks should only issue interest-only loans to investors with an LVR ratio of 80% — less cumbersome than the 60% limit for the majority of new investor loans in New Zealand.
Looking at the broader economy, RBNZ deputy governor Geoff Bascand said improving commodity prices had helped to reduce risk in business lending for New Zealand banks.
“The recovery in dairy commodity prices since mid-2016 has supported farm profitability and has helped to reduce bank non-performing loans in the sector,” Bascard said.
“Recent stress tests suggest that banks are well positioned to withstand a severe economic downturn and operational risk events.”
The New Zealand dollar was little-changed following this morning’s announcement.