Property investors will need a 40 per cent deposit under tough new restrictions revealed yesterday, with restrictions to lending limits on residential properties being extended nationwide.

The new rules are being urgently introduced in an attempt to put a lid on New Zealand's spiralling property prices. Reserve Bank Governor Graeme Wheeler outlined the new rules yesterday, and told banks they will be expected to act immediately.

The new loan-to-value ratios (LVRs) would take effect on September 1, but the Reserve Bank wants banks to "observe the spirit of the new restrictions" in the lead-up to the new policy.

All the major banks said they were supportive of the move.  "Once we have fully reviewed the proposal and its implications we will work with the RBNZ to implement the changes before they come into effect on 1 September," a Westpac spokesman said.

The Reserve Bank will consult on the changes until August 10.

New rules - to begin September 1

Investors

  • Restrictions for investor lending extended
  • Banks will be forced to require a 40 per cent deposit - up from 30 per cent - for at least 95 per cent of the loans they make in this area.

Home buyers

  • Restrictions for owner-occupier lending extended from Auckland to nationwide.
  • Required deposit level remains at 20 per cent for at least 90 per cent of bank lending.

The exemptions allowed under the current LVR policy will continue to operate, including for construction lending and major non-routine repairs of dwellings

The announcement came after Prime Minister John Key expressed frustration about the Reserve Bank's response to rising house prices, saying that it should not need any more time to investigate stricter rules for property investors and should "just get on with it".

In announcing the LVR proposals, Wheeler said the banking system was "heavily exposed" to the property market. "Investor lending has been increasing rapidly and is a significant contributing factor to the current market strength. The proposed restrictions recognise the higher risks associated with such lending.

Wheeler also said work was also progressing on debt-to-income restrictions.

New Zealand Property Investors' Federation chief executive Andrew King believed today's moves were more to do with controlling house prices than protecting the financial stability of the banks.

Making it harder to buy a rental property would have an impact on the number of dwellings available for renters, he said.

For more see Reserve Bank property investor lending restrictions explained

Source: NZHerald