The Reserve Bank of New Zealand has announced a proposal to remove loan-to-value-ratio (LVR) restrictions for the next year. This will support the housing market at a tough time, especially for those who are trying to get into their first home or need to borrow working capital against their home.
The current LVR restrictions were introduced back in 2013, making it difficult for first home buyers to get onto the property ladder without scraping together a twenty percent deposit, and for investors with a thirty percent deposit required.
Drastic times call for drastic measures
Now that we're facing a completely different economy thanks to Covid-19, the RBNZ is proposing that LVR restrictions are removed for 12 months, to help banks keep lending to support customers, including those with mortgage repayment deferrals.
If the change goes through, the RBNZ will monitor activity and feedback from the banks, and make a decision as to whether they continue without the restrictions, or bring them back in.
Removing the restrictions for a year makes sense as banks have to respond to reduced house prices at the same time as higher levels of borrowing. It'll be especially important for those who have taken up mortgage repayment deferrals, and business owners who need to put extra capital into their businesses. Taking the LVR out of the equation removes ambiguity that would have come into play if the current rules had stayed in place.
There's no risk of borrowing getting out of control in this environment, so using tools like this is smart and can help avoid any unintended consequences.
This is also great news for anyone hoping to get their foot on the property ladder, and especially whose deposits have been negatively impacted by Covid-19.
The decision to remove LVR restrictions will be made after a seven day consultation, so watch this space. If you want to read the full statement from the RBNZ, jump over here.