The Reserve Bank is to look into reinstating loan-to-value ratio (LVR) restrictions on high-risk lending, which would have an effect on house buyers.
The bank said it will consult on the move next month before potentially reintroducing the measure in March 2021.
They were originally introduced in a bid to cool the housing market and reduce risky lending but were removed in May so they didn’t undermine the mortgage deferral scheme put in place in response to the Covid-19 pandemic.
Reserve Bank Deputy Governor Geoff Bascand said today: “Circumstances in the lending market have since improved and we are now observing rapid growth in higher-risk investor lending.
“We will consult about re-instating the restrictions we had in place pre-Covid, which limited the amount of high-risk lending that banks could make.”
An LVR is a measure of how much a bank can lend against a mortgaged property, compared with the value of that property.
Until May, banks were permitted to make no more than 20 per cent of their residential mortgage lending to high-LVR (less than 20 per cent deposit) borrowers who are owner occupiers.
They were also only permitted to make five per cent of their residential mortgage lending to high-LVR (less than 30 per cent deposit) borrowers who are investors.
The bank is also reviewing the Official Cash Rate today, which affects interest rates on savings and mortgages. The rate is likely to stay the same and low rates are expected for the foreseeable future.
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