Restrictions on home loans will ease from January

Housing loan restrictions are expected to ease from January of next year.

The Reserve Bank will lift restrictions on bank lending to homeowners and investors.

Starting in January, banks will be allowed to lend 20% of their new loans to homeowners with a deposit of less than 20%.

This represents an increase from the current level of 15%.

While banks will be able to lend 5% of their new loans to investors with a deposit of less than 30%. Currently, it is 35%.

Reserve Bank Governor Adrian Orr said the risks to the New Zealand financial system have eased over the last six months, but vulnerabilities persist.

"In particular, households remain exposed to financial shocks because of their heavy mortgage debt."

But he added that mortgage credit growth and home price inflation have softened to become more sustainable rates, reducing the risk of new homeownership.

"In response, we are easing our restrictions on the loan-to-value ratio (LVR) on new mortgage loans from banks."

Orr said that if bank lending standards were maintained, he hoped to lighten up LVR further [loan to value] restrictions in the next few years

The Reserve Bank introduced high loan-to-value restrictions in October 2013 to cool down the real estate market.

They were supposed to be a temporary measure and have been modified several times since their creation.

For more property news and announcements go to oneroof.co.nz

At the beginning of this year, the restrictions were changed to allow banks to lend up to 15% of new loans to homeowners to those whose deposit is less than 20%.

Up to 5% of the loans to investors are allowed for those whose deposit is less than 35%.

The changes saw the first home purchases increase in percentage while investor purchases fell.

The Auckland property market has collapsed over the past 18 months, while regional property prices are still booming.

Banks risk losing their operating license if they do not comply with the restrictions, a consequence which has meant that most lenders lend themselves well.