Reserve Bank confirms nationwide restrictions on loans to property investors

Release date
05 September 2016

The Reserve Bank today confirmed that new rules tighten restrictions on bank lending to residential property buyers throughout New Zealand.

From 1 October, residential property investors will generally need a 40 percent deposit for a mortgage loan, and owner-occupiers will generally need a 20 percent deposit. In both cases, banks are still allowed to make a small number of loans to borrowers with smaller deposits. 

Confirmation of the new rules is in the Reserve Bank’s response to submissions to its public consultation about changes to Loan to Value Ratio (LVR) rules.   

The Reserve Bank is modifying its proposals in response to public consultation, and also through meetings and workshops with banks that are subject to the rules.

The new rules take effect on 1 October 2016, but banks have generally chosen to start following the new limits already. 

Existing exemptions to LVR restrictions will continue to apply under the new rules and have been extended to make it easier to borrow for a newly built home or to do work needed for a residence to comply with new building codes and rental-property standards.

Summary of changes to LVR rules

Main changes are shown in red text

Existing restrictions until 30 September 2016

New restrictions from 1 October 2016

Borrowers who are owner-occupiers.

In Auckland, 10% of a bank’s total lending to owner-occupiers can be to borrowers with a deposit less than 20% of the house value.

For all of New Zealand, 10% of a bank’s total lending to owner-occupiers can be to borrowers with a deposit less than 20% of the house value.

Outside Auckland, 15% of a bank’s total lending can be to borrowers with a deposit less than 20% of the house value.

Borrowers who are residential property investors

In Auckland, 5% of a bank’s total lending to residential property investors can be to borrowers with a deposit less than 30% of the house value.

For all of New Zealand, 5% of a bank’s total lending to residential property investors can be to borrowers with a deposit less than 40% of the house value.

Outside Auckland, owner-occupiers and residential property investors treated the same. 15% of a bank’s total lending can be to borrowers with a deposit less than 20% of the house value.

In Auckland, borrowers who include an owner-occupied residence in a portfolio of mortgaged houses are allowed to borrow up to 70% of the value of the entire property portfolio.

For all New Zealand, borrowers who include an owner-occupied residence in a portfolio of mortgaged houses are allowed to borrow up to 80% of the value of their owner-occupier home and 60% of the value of their investment properties.

Exemptions from the LVR restrictions

Loans to borrowers building a new residence are exempt.

The exemption doesn't apply for a borrower buying a residence where construction has progressed beyond ground works.

The exemption applies for owner-occupiers and for residential property investors.

Loans to people building a new residence are exempt. The loan must be for a residence that has been completed within the previous six months and it must be bought from the developer.
The exemption applies for owner-occupiers and for residential property investors.
The LVR rules do not prescribe the size of a deposit for new residences.

Loans are exempt if used for remediation after a fire, earthquake, or to bring a residence up to new building codes.

The exemption applies for owner-occupiers and for residential property investors.

Loans are exempt if used for remediation after a fire, earthquake, to bring a residence up to new building codes, or to comply with new rental property standards (for example insulation).

The exemption applies for owner-occupiers and for residential property investors.

Low-deposit borrowers using the Housing New Zealand Welcome Home Loan scheme to buy their first-home are exempt from the LVR rules.

Low-deposit borrowers using the Housing New Zealand Welcome Home Loan scheme to buy their first-home are exempt from the LVR rules.

More information:

Media contact
Angus Barclay
External Communications Adviser
Ph 04 471 3698 or 027 337 1102
Email:
angus.barclay@rbnz.govt.nz