The restrictions came into place as a means by which to reduce risks to financial stability and were subsequently removed in April 2020 in the wake of the Covid-19 pandemic. However, as the general manager of financial stability Geoff Bascand explains, the better-than-expected economic results post-Covid have actually led to skyrocketing house prices.

“When LVR restrictions were removed in April, we said they would remain off for a period of at least 12 months to help support the economy. However, since then the economy has performed better than expected, and the housing market has proved resilient.

“In addition, lending at higher LVRs has risen, particularly for investors, and there are signs that this trend is accelerating.”

The Reserve Bank is concerned that increases in highly-leveraged borrowing, if continued, could lead to emerging risks to financial stability.

“LVR restrictions set a ceiling on the percentage of new mortgage lending that banks can offer at high LVRs. We are proposing to reinstate the LVR restrictions at the same level as prior to the onset of Covid-19, where a maximum of 20% of new lending is allowed at LVRs above 80% for owner-occupiers, and 5% of new lending at LVRs above 70% for investors.”

Banks have already reinstated the 70% LVR limit for investor, with ANZ recently announcing a 60% LVR limit.

The Reserve Bank will be taking feedback on this proposal and will be accepting submissions until January 22, 2021. Its decision will be issued in February 2021, and will take effect from March 1, 2021, Bascand says.