RBNZ: Proposing the removal of mortgage LVR restrictions

In its latest statement, the Reserve Bank of New Zealand (RBNZ) said that it is proposing the removal of mortgage loan-to-value ratio (LVR) restrictions in response to the economic downturn caused by the COVID-19 pandemic.

Key quotes

The Reserve Bank is proposing the removal of mortgage loan-to-value ratio (LVR) restrictions in line with the Bank’s financial stability mandate.

The proposal is in response to the economic downturn caused by the COVID-19 pandemic. The LVR requirements are one of the macro-prudential tools that the Reserve Bank has available to respond to cyclical pressures.

‘LVRs were introduced as a macro-prudential financial stability tool in October 2013 and have been adjusted over time. Adjusting the use and calibration of macro-prudential tools in response to economic conditions is how they are intended to be used’, Deputy Governor and General Manager of Financial Stability Geoff Bascand says.

This move will help banks to keep lending to support customers, including mortgage deferrals.

The change, if effected, will be made via a change in bank Conditions of Registration. If the decision is made to remove the restrictions, the Reserve Bank will monitor lending activity and feedback from retail banks over the next 12 months as the economic impact of the COVID-19 pandemic becomes clearer.

This provides banks and customers certainty that no further changes to LVR requirements will be made for at least one year.

FX implications

Following the RBNZ statement, NZD/USD popped from 0.6032 to 0.6040, currently near 0.6037. However, no major moves were noted outside the kiwi pair due to the announcement.