5 May 2020

RBNZ lifts LVR restrictions. What does this mean for you?

Well, it had to happen eventually. On Thursday 30 April, after a short-lived consultation process, Reserve Bank of New Zealand (RBNZ) resolved to ease the loan-to-value (LVR) restrictions in New Zealand.

Whether you are a cautious first-home buyer or a savvy investor, the removal of these restrictions could open the door to residential property opportunities.

An end to Loan-to-Value Ratio

Introduced in 2013, the LVR rules placed restrictions on how much banks were able to lend to borrowers, to counteract rising house prices and to help create stability in New Zealand’s financial system.

Geoff Bascand, RBNZ’s Head of Financial Stability, says New Zealand’s central bank continued with the deferral of these restrictions, after considering more than 70 submissions on the proposed changes.

"Given the current uncertainty around the economic outlook, the Reserve Bank considers it is unlikely banks will weaken lending standards to high-risk borrowers. The more likely risk is that banks are overly cautious with lending to credit-worthy borrowers."

With the lifting of these restrictions across the next 12 months, RBNZ is looking to help the real estate market recover in the wake of COVID-19.

"Removing LVR restrictions supports financial stability by removing one potential obstacle to the flow of credit in the economy, helping to soften the downturn."

What does this mean for first-home buyers?

Let’s be fair, first-home buyers across the country are hoping the deferral of this scheme will help them in purchasing a home. But there is still a big question yet to be answered: will banks tighten up their lending criteria, or will there be any changes to said criteria they will need to meet?

If nothing changes, we expect to see new opportunities opening in the Waikato property market. 

How can property investors benefit?

Removing the 70:30 LVR for property investors means one thing: access to, and their ability to leverage, existing equity.

Commentators expect little benefit to investors ‘straight off the bat’, with a hopeful-albeit-cautious outlook. It is believed the high-LVR guidelines will remain until the property market stabilises, but perception is that once it has, market lending will increase to the pre-2013 LVR of 80% for an investment property.

Start looking with Lugtons

Here at Lugtons, we have yet to see a slowdown in the market. With the relaxing of the LVR on lending, we look forward to helping buyers to find new residential properties within the Waikato region. If you’re looking to sell, or purchase, contact the team at Lugtons today – we’re here to help.




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