The Reserve Bank (RBNZ) says it's maintaining banks' low equity home lending limits at current levels, by retaining loan-to-value-ratio (LVR) restrictions at current settings.
This follows the annual review of macroprudential policy by the RBNZ's Financial Policy Committee (FPC).
“Housing risks are currently contained. Nationally, house prices have remained broadly flat in recent years, while mortgage lending growth has been modest and the share of higher-risk lending remains manageable,” Angus McGregor, RBNZ Assistant Governor for Financial Stability, said.
LVR restrictions limit the volume of low equity mortgage lending banks can do. The current LVR restrictions, in place since December last year, are:
- For owner occupiers, allowing up to 25% of new lending to have an LVR above 80%.
- For investors, allowing up to 10% of new lending to have an LVR above 70%.
“Debt-to-income (DTI) restrictions also remain in place. These complement LVR restrictions and are an important guardrail against the build-up of high-risk lending, particularly during periods of low interest rates and strong housing demand,” said McGregor.
DTI restrictions limit the amount of debt borrowers can take on relative to their income. Current DTI settings allow banks to lend up to:
- 20% of owner-occupier lending to borrowers with a DTI ratio greater than 6
- 20% of investor loans to investors with a DTI ratio greater than 7.
McGregor said the RBNZ will continue monitoring developments in house prices, mortgage lending, and broader financial stability risks. The next macroprudential settings review is planned in about 12 months time, but McGregor said it could be brought forward if conditions warrant.
"We review settings annually to ensure they remain appropriate given housing market conditions and financial stability risks. This forms part of the macroprudential policy framework published earlier this year," McGregor said.
The FPC considered a range of information, including house price developments, the risk profile of recent mortgage lending, financial strain amongst existing borrowers, and the resilience of the banking system, the RBNZ says.
The FPC was established to make key financial stability policy decisions, including setting prudential requirements for financial institutions regulated by the RBNZ, and making macro-prudential policy decisions such as DTI ratio and LVR settings for bank lending.
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