Reserve Bank to scrap loan-to-value ratio for one year
It will now be easier to get a bank loan to buy a house, with the removal of loan-to-value ratio (LVR) restrictions by the Reserve Bank, effective tomorrow.
Restrictions were imposed in October 2013, meaning no more than 10 percent of banks' new mortgages by value could be to people with deposits of less than 20 percent.
With inflating house prices, the requirement for buyers to stump up the 20 percent deposit has been prohibitive.
Reserve Bank deputy governor Geoff Bascand said it received more than 70 submissions on the proposed changes.
"The feedback raised a number of valid points and concerns which were all carefully considered.
Submitters against the removal of the LVR policy were concerned about potential adverse impacts on financial stability, such as the risk of bank failure.
They also noted the economy had weakened and job security had reduced, and the ability of people to service a mortgage would likely decline in the coming months.
"Given the current uncertainty around the economic outlook, the Reserve Bank considers that it is unlikely that banks will weaken lending standards to high risk borrowers. The more likely risk is that banks are overly cautious with lending to credit-worthy borrowers," Bascand said.
"Rather, removing LVR restrictions now supports financial stability by removing one potential obstacle to the flow of credit in the economy, helping to soften the downturn."
The policy would be reviewed in 12 months.
Read more about the Covid-19 coronavirus:
See all RNZ Covid-19 news Your Covid-19 questions answered - from health and employment to managing anxiety A timeline: How the coronavirus started, spread and stalled life in New Zealand Covid-19 symptoms: What they are and how they make you feel Touching your Face: Why do we do it and how to stop Scientific hand-washing advice to avoid infection Coronavirus: A glossary of terms The Coronavirus Podcast
HAVE YOUR SAY
New to Crux?
Create an account
It's free to register and we won’t bombard you with annoying emails. Login Here.
No one has commented on this page yet.