New Zealand implements firmer LVR restrictions to curb property investors

Source: Xinhua| 2021-02-09 12:49:52|Editor: huaxia

WELLINGTON, Feb. 9 (Xinhua) -- The Reserve Bank of New Zealand is putting in place more stringent loan-to-value ratio (LVR) restrictions to reduce the risks to financial stability caused by high-risk mortgage lending.

LVR restrictions were removed in April 2020 to ensure they do not interfere with COVID-19 policy responses aimed at promoting cash flow and confidence, Reserve Bank Deputy Governor and General Manager of Financial Stability Geoff Bascand said in a statement on Tuesday.

"Since then, 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," Bascand said.

"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," he said.

A growing number of highly indebted borrowers, especially investors, are now financially vulnerable to house price corrections and disruptions to their ability to service the debt. Highly leveraged property owners, in particular investors, are more prone to rapid "fire sales" that potentially amplify any downturn, he added.

These financial stability risks exceed the situation at the time of the Bank's December LVR consultation, resulting in more restrictive policy settings being decided on, Bascand said.

As of March 1, the Reserve Bank will be reinstating LVR restrictions at the same level they were set at prior to the onset of COVID-19, with a further tightening of investors' restrictions taking effect on May 1. The two-step process is necessitated by mortgage lenders' operational capabilities, he said.

LVR restrictions are one of the Reserve Bank's tools designed to reduce the risk associated with "boom-bust" cycles, which helps meet the statutory purpose of "promoting the maintenance of a sound and efficient financial system." LVR restrictions set a ceiling on the percentage of new mortgage lending that banks can offer at high LVRs, according to Bascand.

Also, on Tuesday, Deputy Prime Minister and Finance Minister Grant Robertson stressed housing affordability in his release of the 2021 Budget Policy Statement.

"We will also continue the balanced approach to invest in strong public services and addressing issues like housing, while keeping a lid on debt," Robertson said in a speech in Wellington. Enditem