Following suit from their Official Cash Rate (OCR) announcement, the Reserve Bank (RBNZ) has announced that the current Loan-to-value (LVR) restrictions will also stay at their current levels. New data from the RBNZ reveals that both First Home Buyers (FHB) and Investors have both increased their overall mortgage lending.

Here’s what you need to know:

Mortgage Lending Restrictions Stay in Place: Reserve Bank

The Reserve Bank has decided to keep the loan-to-value at its current level to “bolster financial system resilience”. Governor Adrian Orr cited that Reserve Bank’s main concern is always the “risk that prolonged low interest rates could lead to a resurgence in higher-risk lending”.

Currently banks are allowed to make no more than 20% of their residential mortgage lending to high-LVR (less than 20% deposit) borrowers who are owner-occupiers, and no more than 5% of residential mortgage lending to high-LVR (less than 30% deposit) borrowers who are investors.

The Reserve Bank has confidence in the current levels of both the Official Cash Rate and Loan-to-Value ratio restrictions it seems, stating in its biannual Financial Stability Report that “there are early signs that housing lending risk may be increasing again”. The report cited the house growth has seen a rise, but remain cautious going forward, “House price growth has strengthened in recent months, even with high price-to-income ratios, and it is unclear how long this strength will persist.”

On whether there could be cuts in the near future, it seems the Reserve Bank won’t be relaxing the LVRs any time soon “Given the uncertainty around the future trend in housing lending risk, it would not be appropriate to ease LVR restrictions further at this point. We will continue to review LVR restrictions and will adjust them in line with changes in the overall risk environment.”

So, the earliest point which the LVRs might now be relaxed again would likely not be till November 2020.

First Home Buyers Hitting New Highs in Lending

Data released from the Reserve Bank has indicated that in October, first home buyers (FHB) made up the highest portion of new mortgage lending they’ve ever accounted for since at least 2014, with 18% of new mortgage lending in October going to first home buyers.

Year-on-year, new lending to first home buyers was up 20%, and according to the report, KiwiSaver is playing a significant role helping FHB get on the property ladder. In the year to March, nearly $1b was withdrawn from KiwiSaver for first home purchases – that’s a 35% increase from the previous year. New lending to investors was also up 16% year-on-year to $1.20b.

October also witnessed a big month for mortgages. In terms of dollar terms, $6 billion advanced by the banks in October might have been most ever for an October month.

– Ravi Mehta, from Professional Financial Solution