Reserve Bank proposes to scrap LVR restrictions

Newspapers being printed in commercial press

After some consideration, the Reserve Bank of New Zealand (RBNZ) is proposing to scrap the Loan to Value ratio (LVR) restriction.

The restriction was put in place seven years ago in October 2013 to slow down the growth of house prices, especially in Auckland. However, given the situation we find ourselves in the midst of COVID-19, the RBNZ has opened a seven day consultation period for the lift to be considered.

According to their press release, the RBNZ says "LVRs were introduced as a macro-prudential financial stability tool in October 2013 and have been adjusted over time," - RBNZ deputy governor Geoff Bascand. "Adjusting the use and calibration of macro-prudential tools in response to economic conditions is how they are intended to be used."

Lifting the restriction will definitely open up the market to first home buyers whose deposits may have suffered from COVID-19. However, it may also continue to keep house prices high as it would open up the market even more for investors who won't be bound by the 30% equity restriction.

You can view the full press release here.

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