RBNZ clamps down further on low-deposit home lending

First home buyers could find it tougher to borrow under a tightening of the loan to value ratio for bank lending. Photo / File

Low deposit home loan borrowers will find it even tougher from November when the Reserve Bank will tighten loan-to-value ratios again.

From November 1, only 10 per cent of banks' lending can be to owner-occupiers with a deposit or equity of less than 20 per cent - a move expected to hit first-home buyers hard.

Banks had been allowed to do up to 20 per cent of new lending to owner-occupiers with a loan to value ratio over 80 per cent.

The confirmation comes after the Reserve Bank undertook consultation this month after concerns that house prices remained unsustainable and the risks of a housing market correction had risen.

Geoff Bascand, Reserve Bank deputy governor and general manager for financial stability, said restricting high-risk lending would help prevent these problems getting worse.

"We launched our consultation after observing that despite previous adjustments to LVR restrictions, house prices remained unsustainable and the risks of a housing market correction had continued to rise, increasing risks to economic and financial stability.

"Restricting high risk lending will help prevent these problems getting worse."

Bascand said submissions from industry representatives largely supported the proposal.

But feedback from the public had been mixed, with some submissions supporting the proposals, and others questioning the need for further restrictions or arguing for other policies to protect the financial system.

The change had been due to come into effect from October 1.

But given the disruption from the raised Covid-19 alert levels to customers and banks who were managing or completing purchases associated with existing pre-approvals it had delayed the start.

However the central bank said it expected banks to comply with the spirit of the new restrictions immediately.

The change is expected to make it harder for first-home buyers given they are the ones most likely to have a low deposit.

The owner-occupier LVR change follows increased restrictions on investor lending brought back in this year, although most banks had already tightened lending to investors at the end of 2020.

In March this year the RBNZ brought back the 5 per cent cap on new lending to investors with a deposit/equity of less than 30 per cent and by May this increased a 5 per cent on lending to those with deposits/equity under 40 per cent.