More low deposit lending up for grabs for first home buyers

Come New Year, banks will be allowed to issue 5% more low deposit home loans, thanks to a LVR  regulation change, the Reserve Bank of New Zealand (RBNZ) announced today (28 November).

From 1 January 2019 onwards, lenders will be able to issue a maximum of 20% – up from the current 15% – of new home loans to owner occupiers who have a deposit of less than 20%.

In a media conference following the Financial Stability Report release, RBNZ said first home buyers are currently getting “very good access” to the high LVR loans. This volume is expected to increase with the LVR easing, from around a third of these loans to about 45%, going to first home buyers.

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RBNZ has eased its LVR rules because, “both mortgage credit growth and house price inflation have eased to more sustainable rates, reducing the riskiness of banks’ new housing lending,” the Bank says in its media release.

Banks are currently issuing as much of their low-deposit lending as they can, subject to their own buffers they have put in place, governor Adrian Orr said at the media conference.

Further LVR easing is on the table, but RBNZ would not name a date as to when they would be dropped altogether, as LVR regulations are an “instrument used for cyclical levels”. So, regulations will be adjusted depending on lenders’ behaviour and what is happening in the housing market and economny.

RBNZ reiterated it is pleased to see house price inflation is easing, but did admit the easing of LVR rules could cause an increase in house prices.

These changes to LVR rules also follow shortly after big banks have been easing home loan rates.

LVR rules also eased for investors 

However, it is not just owner-occupiers who are gettng a possible early Christmas present – LVR restrictions have also been eased for investors.

As of 1 January 2019, lenders will be able to issue new home loans to investors with a deposit of less than 30% – down from 35%.

The latest relaxation of LVR rules is on the back of RBNZ’s earlier LVR easing, as of January this year; lenders have been able to issue 15% of new lending (up from 10%) to owner occupiers with a deposit of less than 20%. And, in addition, RBNZ relaxed deposit requirements for investors, where lenders were able to issue a maximum of 5% of new investor loans to borrowers with a deposit of less than 35%, down from 40%.

Reserve Bank pushing for banks to hold more capital

While RBNZ is reassured by easing pressure on house prices and credit growth, it is still concerned about the amount and quality of capital that banks are holding.

Banks need capital to be able to react if there were any sudden shocks to the market.

In mid-December, the Reserve Bank will make public some work around what it believes needs to happen with banks’ capital requirements.

Since this article has been written, RBNZ has announced it is easing the LVR rules, as of 1 January 2019. You can read more on that, here

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