D-day could be approaching for tough lending rules, requiring home hunters to have a minimum 20 per cent deposit to qualify for a mortgage.

The Reserve Bank of New Zealand said today it is evaluating whether to further ease mortgage curbs and will update the market in its upcoming financial stability report (FSR), deputy governor Geoff Bascand said.

"The question we are assessing is whether the same restrictions are needed in the current environment where debt levels remain high but are not deteriorating, now that bank lending standards have tightened significantly and rapid growth in credit and house prices have stabilised. If these conditions continue, we expect to gradually ease the policy in coming years," Bascand said.

The FSR is due to be published on November 28.


The central bank introduced the LVR restrictions in 2013, a time when high LVR loans exceeded 20 per cent of all outstanding loans, a situation that "implied excessive risk." it said.

It eased those restrictions earlier this year when housing market pressures showed signs of abating.

According to the latest data, high LVR loans now represent about 9 per cent of lending.

Currently, only 15 per cent of new loans to owner-occupiers can have deposits of less than 20 per cent. Just 5 per cent of loans to property investors can have deposits of less than 35 per cent.

In the speech, entitled "Financial stability – risky, safe or just right?," Bascand reiterated that New Zealand has two main vulnerabilities: high levels of indebtedness in the household and dairy sectors and a reliance on foreign sources of funding.

Household indebtedness has increased dramatically in New Zealand in the past 30 years. In 1988, the average household owed about $16,000 and had an income of about $35,000 – a debt-to-income ratio of 46 per cent.

By the end of 2017, that ratio had risen to 168 per cent, following a 10-fold increase in average household debt to almost $160,000, while average incomes had only slightly less than tripled to $95,000.

Credit extended to households in New Zealand as a percentage of gross domestic product has risen from 27.9 per cent in 1990 – relatively low compared to other countries – to 92.2 per cent, Bascand said.


The level and concentration of dairy sector debt has increased significantly in recent decades, to become the next largest share of bank lending after housing.

Regarding foreign funding, Bascand said banks have actively reduced their reliance on offshore funding since the global financial crisis – particularly at short maturities – in order to reduce risk and respond to regulatory changes, such as our liquidity policy.

"However, our reliance on foreign funding remains a significant vulnerability and is not going to go away while New Zealand remains a net borrower from overseas," he said.

As part of the second phase of the Reserve Bank Act review, the central bank is currently reviewing the role and powers of the central bank as they relate to financial stability, in particular, whether it remains fit for purpose or needs modernising.