Reserve Bank of New Zealand proposed changes to loan-to-value restrictions

The Reserve Bank of New Zealand proposed changes to loan-to-value restrictions to mitigate risks from financial stability stemming from property overheating.

In a consultation paper, released Tuesday, the bank said investors should deposit at least 40 for a home loan.

"No more than 5 percent of bank lending to residential property investors across New Zealand would be permitted with an LVR of greater than 60 percent," the bank said.

The proposed restriction is set to simplify the LVR policy by removing the current distinction between lending in Auckland and the rest of the country.

The banking system is heavily exposed to the property market and investor lending has been increasing rapidly, RBNZ Governor Graeme Wheeler said. The proposed restrictions recognize the higher risks associated with such lending, he added.

Wheeler observed that a sharp correction in house prices is a key risk to the financial system, and there are clear signs that this risk is increasing across the country.

The consultations will conclude on August 10 and new restrictions will take effect on September 1.