The Reserve Bank is looking at removing the limits on loans to low-deposit borrowers.

Deputy Governor Geoff Bascand said the proposal was part of its moves to counter the economic downturn caused by the Covid-19 pandemic.

The loan to value ratios (LVRs) limit retail banks to having no more than 20 percent of their lending to buyers with less than a 20 percent deposit, with no more than 5 percent of loans to property investors with less than a 30 percent deposit.

The limits – known as a macro-prudential tool – were brought in six years ago to ensure bank finances were not threatened by risky lending, as well as to take the heat out of a surging housing market.

“Adjusting the use and calibration of macro-prudential tools in response to economic conditions is how they are intended to be used,” Bascand said.

The LVRs had been tightened and relaxed several times since being brought in, depending on the state of the housing market.

Bascand said the move would help banks to keep lending to support customers, including with mortgage deferrals.

The RBNZ is consulting about the move over the next week, and any relaxation would last for at least 12 months, but might be reimposed depending on the economic impact of the virus.

This article was originally published on RNZ and re-published with permission.

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