LVR restrictions improve financial stability during hot housing market - Reserve Bank

The Reserve Bank says it’s decision to introduce restrictions on Loan to value ratios has been successful in improving financial stability at a time when there was a hot housing market.

A review was carried out on the policy by the Bank as part of a wider review of macroprudential policy.

Restrictions on LVRs were introduced in 2013 with the aim of constraining high house price inflation.

But while it says it’s been largely successful in making the financial system more resilient, there has been some negative, unintended effects.

The review finds that it initially unfairly restricted purchases by first home buyers, but once the policy was slightly loosened, the burden swayed more towards restricting property investors.

A regional Auckland LVR policy that was introduced in 2015 led to a spillover demand from Auckland and into other regions.

The bank is also carrying out reviews of some of its other policies.