New statistics show fall in high-LVR lending

Release date
28 November 2013

High loan-to-value ratio (LVR) mortgage lending – otherwise known as low-deposit lending – fell during October, according to new statistics published by the Reserve Bank today.

High-LVR speed limits took effect on 1 October and require banks to reduce lending at LVRs above 80 percent to no more than 10 percent of their total new mortgage lending. The 10 percent limit is exclusive of any high LVR loans made under Housing New Zealand's Welcome Home Loans scheme, the refinancing of existing high-LVR loans, bridging finance or the transfer of existing high-LVR loans between properties.

High-LVR lending excluding exemptions fell to 11.7 percent of total new mortgage lending in October, with exempted lending accounting for an additional 1.1 percent of total new lending. The high-LVR lending share was down from 25.5 percent in September and had been around 30 percent earlier in the year.

Deputy Governor Grant Spencer said the October result showed that banks were adjusting to the new policy and were well placed to meet the speed limit, which will initially be measured as a proportion of total new residential mortgage lending over the six-month period from October 2013 to March 2014.

"The reduction in high-LVR lending will help to reduce the risks of a sharp correction in house prices in an already overvalued housing market. Such a correction could be damaging for the financial sector and broader economy," Mr Spencer said.

"The banks are having to manage a pipeline of loans that were pre-approved prior to the LVR restrictions taking effect. The share of high-LVR lending is expected to fall further over the coming months as these pre-approvals run down.

"While there has been a significant reduction in high-LVR lending already, it is too early to assess what impact this is having on aggregate housing market activity and credit growth."

The new statistics are from a survey of banks implemented earlier in the year to collect better quality data on lending by LVR. While the survey may be expanded in the future, LVRs broken down by region or by type of borrower are not currently available.

Aggregate data from the new bank LVR survey will be published on a monthly basis, from late December, with data for the August-October 2013 period released today.


1

2

3

4

5

6

Total new commitments

LVR 80% or below

LVR above 80%

Exempt

High-LVR share before exemptions

High-LVR share after exemptions

Aug

$4,298m

$3,160m

$1,137m

N/A

26.5%

N/A

Sep

$4,705m

$3,507m

$1,198m

N/A

25.5%

N/A

Oct

$4,470m

$3,899m

$571m

$53m

12.8%

11.7%

Notes to table

The first three columns of the table show banks' mortgage commitments, which are finalised offers to customers to provide mortgage loans or to increase the loan value of an existing mortgage loan, as evidenced by the loan documents provided to the borrower.

The high LVR share (after exemptions) is calculated by excluding exemptions from LVRs above 80 percent (column 3 minus column 4) and dividing by total new commitments less exemptions (column 1 minus column 4).

The Reserve Bank has prepared a short video called Booms, busts and the way between that explains the role of macro-prudential policy, including LVR speed limits.

Media Contact:
Angus Barclay, Communications Adviser
Phone (04) 471 3698 or 027 337 1102, angus.barclay@rbnz.govt.nz