RBNZ Sets Tighter LVR Rules for Investor Mortgages on Signs of Speculation

By Sophia Rodrigues

Signs of speculative dynamic in the New Zealand housing market has prompted the Reserve Bank of New Zealand to announce tighter loan-to-value restrictions than the ones it flagged just two months ago.

The stringent LVR norms apply to investor mortgages and come into effect on May 1, two months after the initial LVR restrictions for both investors and owner-occupiers.

The May 1 restriction for housing investors is the tightest since January 2018.

In a statement Tuesday, the RBNZ acknowledged the financial stability risks it is seeing now exceed the situation at the time it launched the consultation paper in December.

The RBNZ said it is 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,” it added.

This is the first time since 2015 the RBNZ has talked about “speculative” activity in housing market.

Back then, the RBNZ said there was some evidence of rising speculative activity in the Auckland property market which resulted in a firmer LVR restriction for Auckland housing investor loans. A year later the RBNZ announced the tighter restriction will apply to all investor mortgages in New Zealand.

It eased the restriction in January 2018.

In December when the RBNZ launched its consultation paper its main concern was that an increase in highly leveraged borrowing, against an uncertain economic backdrop, was beginning to create risks to financial stability.

There was no mention of speculative activity other than the RBNZ pointing to the risk that higher share of investor lending raises the risk of fire-sales if there is a correction in house prices.

“This is due to both defaults (as rental incomes deteriorate) and a trader-like incentive to exit the housing market as the cycle turns. Consequently, high-risk lending to investors is of particular concern from a financial stability perspective,” the RBNZ said.


On Tuesday, the RBNZ announced that from March 1, LVR restrictions on owner-occupiers and investors will be imposed in line with the rules that existed prior to May 1 last year.  Under this rule, banks can make a maximum of 20% of new mortgages at LVRs above 80%. In case of investors, banks can lend a maximum of 5% at LVRs above 70%.

From May 1, restrictions for investor-lending will be further tightened, with no more than 5% of new lending at LVR above 60%.

Moreover, the RBNZ has urged banks to consider the stringent 60% LVR rule at the loan approval process from now itself.

--Contact: Sophia@centralbankintel.com