Reserve Bank tightens LVR rules for investors
Investors will need a 40% deposit to get a mortgage under new rules to be enforced by the Reserve Bank of New Zealand.
Tuesday, February 9th 2021, 10:10AM 2 Comments
The central bank has announced a new "60/5" speed limit for investor lending, which will come into effect from May this year.
Under the rule, banks will only be allowed to lend 5% of their book to investors above 60% LVR.
In effect, it means most investors will struggle to borrow unless they can provide a 40% deposit.
RBNZ deputy governor Geoff Bascand said: "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."
Bascand said he expects lenders to impose the "60/5" rule on their books "immediately".
The restrictions are being introduced as the Reserve Bank and Government plan to take some of the heat out of the housing market, with investors copping the blame for soaring demand and price inflation.
ASB, ANZ and BNZ have imposed their own 40% deposit requirements on investors in recent weeks.
The RBNZ's new investor rules will be staggered.
From March 1, lenders will be subject to a "70/5" rule, meaning they can only lend 5% of their book to investors above 70% LVR. The stricter limit comes into play two months later.
Owner-occupiers will be subject to pre-Covid LVR limits.
Lenders will only be able to provide 20% of new lending to owner-occupiers above 80% LVR.
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That the Reserve Bank didn’t consider the possibility that property might then become the preferred form of investment for most New Zealanders despite all the warning signs of rising house price inflation is deeply troubling.
The Reserve Bank are the ones that created the current market frenzy in the housing market. Not investors!