These LVR speed limits basically limit the amount of residential mortgage or home lending a bank can do - new lending on property purchases with a LVR greater than 80 per cent is limited to no more than 10 per cent of the dollar value of the bank's new residential mortgage lending.
Therefore it's not an entire prohibition of lending on residential properties with a LVR of 80 per cent or higher, but a restriction. In essence, the tap has been turned down but not off.
Exceptions include Housing New Zealand's Welcome Home Loans, bridging loans (where you have brought a new house and you still haven't sold your existing property and require "bridging finance" to cover the gap), refinancing of an existing loan and existing home loans - apart from existing home owners deciding to 'top-up' their loan; then this will need to be included within the bank's LVR speed limit.
So why has this been brought in? The LVR speed limit is designed to help dampen house price inflation, which has been an area of strong debate for the Auckland and Christchurch regions.
One of the Reserve Bank's roles is to promote a sound and efficient financial system and avoiding significant damage to the system that could result from the failure of a bank. As a result, the Reserve Bank is strongly focused on ensuring financial stability and the potential risks an overheated housing market could bring. Therefore, the Reserve Bank has kept a very close eye on what has been happening in the property market given the potential impact this could have on the wider New Zealand economy as a whole.
First time home buyers are naturally nervous, the market is tight and it seems hard to get on the property ladder. If you are in this camp, or if you are an existing home buyer looking to make the next step up, you should check with your bank to understand what this means for you.
Of course, no one can predict how the property market will go; there are additional factors than financial criteria to consider for Kiwis wanting to achieve their dream of a home with a white picket fence. House availability, buyer demand, and buyer expectations from location to number of rooms and bathrooms are others.
Sam Shuttleworth is a partner at PwC and a banking sector leader.