Reserve Bank consults further on definition of LVR restrictions
The Reserve Bank today released a consultation paper (PDF 118KB) on the previously-announced exemption of new residential construction lending from loan-to-value restrictions.
Loan-to-value restrictions were introduced in October, and take the form of a ‘speed limit'. This means banks must restrict new mortgage lending at LVRs of over 80 percent (deposit of less than 20 percent) to no more than 10 percent of the dollar value of all their new residential mortgage lending.
Reserve Bank Deputy Governor Grant Spencer said the exemption, which was announced earlier this month, will mean that low-deposit lending will fall outside the 10 percent speed limit if it is financing the construction of a new house or apartment.
"While high-LVR borrowers make up a relatively small portion of the new-build market, the exemption is expected to support new building and therefore help to moderate house price pressures. We are now consulting with banks on the operation of the exemption. No other exemptions are being considered."
The Reserve Bank has also released a draft revision of the chapter of the Banking Supervision Handbook (BS19) (PDF 301KB) that sets out the terms of the LVR restriction, including the proposed details of the exemption.
The Bank has also released the summary of submissions and policy response (PDF 99KB) for the second stage of its earlier review of housing capital. The finalised policy allows banks that provide unsecured loans to mortgage customers to exclude that lending when calculating a customer's loan value - except where the terms of the personal loan or credit card are directly linked to the mortgage.
Mr Spencer said: "The Reserve Bank has set strong expectations on banks regarding non-mortgage lending to mortgage customers. This will help to ensure banks are not allowing deposits to be funded through a credit card or unsecured lending. This approach is consistent with reducing systemic risk in the banking system."
Submissions on the proposed changes are sought by 14 February 2014.
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