Borrowers urged to talk to their bank as lending limits loom

The New Zealand Bankers’ Association has urged prospective borrowers to talk to their bank as the Reserve Bank’s low equity lending restrictions come into force next week.

Under the Reserve Bank’s new rules which take effect on October 1, banks must limit new residential mortgage lending with loan-to-value ratios (LVR) over 80% to no more than 10% of the dollar value of their new housing lending flows.

The move comes on top of increased capital requirements for the high LVR housing portfolios of the four largest banks from September 30. The new rules have resulted in low equity premiums and higher interest rates for high LVR borrowers as banks work to meet the new requirements ahead of the deadline.

Referring to the new lending limits, New Zealand Bankers’ Association chief executive Kirk Hope said the goal posts had moved for low equity borrowers.

“It means people with a deposit of less than 20% will have reduced access to a mortgage. Households and small businesses may be declined loans because of the Reserve Bank’s lending restrictions.

“We suggest you talk to your bank about your individual needs and circumstances.

“Our banks are very competitive, and will continue to do all they can to meet the needs of their customers within the bounds of the Reserve Bank-imposed lending limits,” said Hope.