First Home Buyers Set to Benefit as Reserve Bank Loosens Lending Rules
A quarter of a million dollars. That’s the average deposit currently required to buy a home in New Zealand, a barrier that’s locked many aspiring homeowners out of the market. But that could be about to change. The Reserve Bank of New Zealand (RBNZ) is proposing to relax lending restrictions, potentially opening the door to homeownership for thousands more Kiwis – and sparking debate about the future of the property market.
What’s Changing with Loan-to-Value Ratios?
From December 1st, banks could be allowed to increase the proportion of loans offered to borrowers with smaller deposits. Currently, only 20% of new home loans can go to owner-occupiers with less than a 20% deposit. The RBNZ proposes raising this to 25%. Similarly, lending to property investors with deposits under 30% will see an increase, from 5% to 10% of new loans. This shift comes after the introduction of debt-to-income (DTI) restrictions last year, which the RBNZ believes have created a more stable lending environment.
DTI Restrictions Remain in Place
It’s crucial to understand that the RBNZ isn’t throwing caution to the wind. The DTI restrictions, designed to limit risky lending based on borrowers’ income, will remain unchanged. Acting Assistant Governor of Financial Stability, Angus McGregor, emphasized this point, stating that the current settings are “calibrated to limit high-risk lending in housing upswings and periods of low interest rates.” The move to ease loan-to-value ratio (LVR) restrictions is seen as a complementary adjustment, allowing for greater market flexibility within a controlled framework.
Why Now? The RBNZ’s Rationale
The RBNZ’s decision isn’t happening in a vacuum. McGregor cited “moderate” growth in mortgage lending and a low share of high-risk loans as key factors. Crucially, house prices are currently within the RBNZ’s “range of sustainable estimates.” This suggests the central bank believes the market can absorb the increased lending without triggering a rapid price surge. The changes are intended to improve “market efficiency and access to credit,” particularly for first-home buyers.
Impact on First Home Buyers and Investors
The immediate beneficiaries are likely to be those struggling to save a substantial deposit. A smaller deposit requirement reduces the upfront financial hurdle, making homeownership more attainable. Finance Minister Nicola Willis welcomed the move, reiterating the importance of homeownership as a “Kiwi dream.” The Property Investors Federation also expressed optimism, suggesting the changes could boost rental supply by enabling smaller-scale investors to enter the market. However, Matt Ball, Advocacy Manager, cautioned that the impact will be targeted and shouldn’t lead to a widespread price spike.
Looking Ahead: The New Financial Policy Committee
The responsibility for reviewing LVR and DTI settings will shift to a new Financial Policy Committee next year. This committee will conduct at least annual reviews and adjust the rules as needed based on evolving risks. This signals a commitment to ongoing monitoring and a willingness to adapt to changing market conditions. The dynamic nature of the housing market means these settings are unlikely to remain static for long.
Potential for Future Adjustments
While the RBNZ currently deems the market stable, several factors could trigger future adjustments. A significant drop in interest rates, a surge in migration, or unexpected economic growth could all necessitate a tightening of lending restrictions. Conversely, a sharp economic downturn or a substantial increase in unemployment could prompt further easing. The committee’s ability to respond quickly and decisively will be crucial in maintaining financial stability.
Will This Spark a Housing Boom?
The question on everyone’s mind is whether these changes will reignite the housing market. While the increased lending flexibility is undoubtedly positive for aspiring homeowners, it’s unlikely to trigger a boom of the scale seen in recent years. The DTI restrictions remain a significant constraint, preventing excessive borrowing. Furthermore, higher interest rates are already dampening demand. However, a modest increase in house prices is certainly possible, particularly in regions with limited housing supply.
What are your predictions for the New Zealand property market in the coming months? Share your thoughts in the comments below!
