The Reserve Bank introduced the existing LVR restrictions on mortgage lending back when New Zealand’s housing market was on hyper-inflated overdrive.

But times have changed, the housing market has cooled and most commentators don’t expect it to take off in a spectacular fashion again – even though the OCR has now been cut to 1.5%. The Reserve Bank has already relaxed the LVRs slightly twice, at the start of this year and last year, but many investors would like to see further easing.

And they might be in luck. According to Reserve Bank Governor Adrian Orr, that prospect is definitely on the cards.

In a Good Returns TV interview with NZ Property Investor magazine publisher Philip Macalister, Orr says that the Reserve Bank would like to be heading back to a more neutral path in terms of policy.

The LVRs are aimed at the high leverage end of the housing market as the Reserve Bank doesn’t see value in having extreme levels of leverage in that market, he says.

“They have been very effective and, with time, as the pockets of extreme leverage ease – which they are – we’ll get into a position where we can start reducing the LVRs.

“We’ll be talking about that in our decision at the forthcoming Financial Stability Review and it’s something that we will review every six months.”

Under the current LVRs, banks can allocate 5% of their loans to new investors to borrowers with a less than 30% deposit – and 20% of their owner-occupier loans to borrowers with a deposit of less than 20%.

Or adds that the Reserve Bank believes the housing market will remain very subdued and that their projections going forward are based on low, but still positive, house price growth.