SYDNEY: The Reserve Bank of New Zealand on Friday said it plans to further reduce risky mortgage lending, as it cuts back further stimulus amid rising inflation and a continuing house price surge.
Investors have continued to buy properties, buoyed by historically low interest rates and cheap access to finance from the government’s pandemic stimulus spending.
The Reserve Bank of New Zealand (RBNZ) said on Friday it was seeking views on its proposal to reduce risky mortgage lending by further cutting the amount of high loan-to-value ratio (LVR) lending to owner-occupiers.
“We propose restricting the amount of lending banks can do above an LVR of 80% to 10% of all new loans to owner-occupiers, down from 20% at present,” Deputy Governor Geoff Bascand said in a statement.
“Our analysis indicates that house prices are above their sustainable level, and the risks of a housing market correction are continuing to rise,” he added.
LVR gauges how much a bank lends against mortgaged property, compared with the value of that property. Borrowers with LVRs of more than 80% are often considered as stretching their financial resources.
The bank had lifted LVR restrictions on mortgage lending in April last year to spur credit and boost the pandemic-hit economy, but reinstated the curbs in March after the housing market accelerated rapidly.
RBNZ invited consultations from interested parties until Sept. 17 and plans to implement the new LVR settings from Oct. 1.
The central bank is also planning to launch a consultation in October on proposed debt-to-income (DTI) restrictions.
RBNZ is widely expected to hike interest rates next month, having delayed an increase in August due to New Zealand’s first case of COVID-19 in six months.