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Reserve Bank reintroduces 'stringent' LVR restrictions for those looking to buy property

The Reserve Bank of New Zealand has this morning announced more "stringent" LVR restrictions for those looking to buy property as it aims to reduce risks caused by high-risk mortgage lending.

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The move is expected to slow the surge in house prices, but not until the second half of 2021. Source: 1 NEWS

An LVR, or loan-to-value ratio, is the amount of money a person needs to borrow as a percentage of the total value of a property.

As of March 1, LVR restrictions for owner-occupiers will be reinstated to a maximum of 20 per cent of new lending at LVRs above 80 per cent.

This means lenders are now restricted in the number of high LVR loans they can issue.

As well, LVR restrictions for investors will be reinstated to a maximum of five per cent of new lending at LVRs above 70 per cent.

From May 1, LVR restrictions for investors will be further raised to a maximum of five per cent of new lending at LVRs above 60 per cent.

It comes after LVR restrictions were removed in April last year to ensure they didn’t interfere with Covid-19 policy responses aimed at promoting cash flow and confidence.

There were no restrictions last year, meaning buyers could potentially purchase a home while putting down a smaller down payment.

However, the property market has since boomed.

"In part due to the success of the health and economic policy responses, we have witnessed a rapid acceleration in the housing market, with new records being set for the national median price, and new mortgage lending continuing at a strong pace," Reserve Bank deputy governor and general manager of financial stability Geoff Bascand said in a statement.

"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."

The changes come after public consultation between December 8 and January 22.