The Reserve Bank today published a summary of submissions and final policy positions in regards to changes in the Loan to Value Ratio restriction rules (LVRs), and the asset classification of residential property investment loans in the Capital Adequacy Framework.
As announced in May, the Reserve Bank is altering existing LVR rules to focus on rental property investors in the Auckland region. The alterations mean that borrowers will generally need a 30 percent deposit for a mortgage loan secured against Auckland rental property.
The new rules will become effective on 1 November 2015. This is one month later than initially proposed, to enable banks to adapt their systems for the new rules.
Restrictions on loans to owner occupiers in Auckland will continue to apply, with banks allowed to make up to 10 percent of their new mortgage lending to such borrowers with LVRs exceeding 80 percent.
Restrictions outside Auckland are being eased after 1 November. Banks will be able to make up to 15 percent of their new mortgage lending to borrowers with LVRs exceeding 80 percent, regardless of whether the borrowers are owner occupiers or residential property investors.
The Reserve Bank received feedback via written submissions, and through meetings and workshops with affected banks. The Reserve Bank has modified its proposals in response to feedback about compliance challenges and special cases. The Reserve Bank’s final policy position adopts a 5 percent speed limit for high-LVR loans to Auckland investors, instead of 2 percent as originally proposed. The Reserve Bank is also introducing an exemption for high LVR lending to finance leaky building remediation and similar cases.
Deputy Governor Grant Spencer will expand on the Reserve Bank’s view of the property market in a speech on Monday 24 August.