However, not everybody is happy. The Real Estate Institute is calling for banks to be more flexible with lending to first-home buyers. LVR restrictions were being eased because the financial system remained sound and risks to the system had reduced in the past six months, Reserve Bank acting governor Grant Spencer said.
The LVR policies had been place since 2013 to address financial stability risks arising from rapid house price inflation and increasing household debt.
The policies had helped improve banking system resilience by substantially reducing the share of high-LVR loans.
In the past six months, pressures in the housing market had continued to moderate because of the tightening of LVR restrictions in October 2016, a more general firming of bank lending standards and an increase in mortgage interest rates earlier this year.
"In light of these developments, the Reserve Bank is undertaking a modest easing of the LVR restrictions."
From January 1, no more than 15% (now 10%) of a bank’s new mortgage lending to owner-occupiers can be at LVRs of more than 80%. No more than 5% of each bank’s new mortgage lending to residential property investors can be at LVRs of more than 65% (now 60%).
The Reserve Bank "will monitor the impact of these changes and will only make further LVR adjustments if financial stability risks remain contained. A cautious approach will reduce the risk of resurgence in the housing market or deterioration in lending standards," Mr Spencer said.
Real Estate Institute chief executive Bindi Norwell was surprised and concerned LVRs had remained the same for first-time buyers. The institute had been calling for a review for first time buyers to make it easier for them to get on to the property ladder.
"We constantly receive feedback from our members around the country that for many young couples, saving a 20% deposit is just too much for them — especially when they’re already paying rent."
A median house price of $530,000 in New Zealand meant a deposit of $106,000 was needed. In Auckland, a median house price of $850,000 required a deposit of $170,000.
It was important to get the balance right between responsible lending and saving for a deposit. But it was also imperative individuals did not become too indebted, particularly if interest rates rose in the next couple of years, which they were forecast to do, Ms Norwell said.
Property Institute chief executive Ashley Church welcomed the loosening of the LVR rules but said the speed was not fast enough to address the problems the rules had created.
The LVR restrictions had locked a generation of first-home buyers out of the property market and now appeared to be the leading cause of a dramatic drop in the number of homes available for rental.
"These rules didn’t just impact on first-home buyers. They also locked investors out of the market."
Westpac senior economist Michael Gordon said he expected some easing in the LVR restrictions by mid-2018 and was surprised the Reserve Bank had moved so early. The momentum in house prices had turned positive again in the past few months, and Westpac saw a risk of a further near-term bounce, as buyers tried to get in ahead of the foreign-buyer restrictions and the extension of the bright-line capital gain test from two to five years.
"The easing of the LVR restrictions will provide further support for house prices at the margin."
Westpac had earlier predicted a 2% fall in house prices next year, as a range of Government policies aimed at cooling housing demand took effect, he said.
The earlier-than-expected easing of the LVR limits muddied the waters and would probably mean a lift in the forecast.
"We still think that the combined impact of Government and Reserve Bank policies will be negative for house prices next year."
At a glance
• For banks lending to owner-occupiers, the "speed limit" — the allowed share of loans above an 80% LVR — will be lifted from 10% to 15%.
• For investors, the effective LVR cap will be lifted from 60% to 65%.
• The changes will take effect from January 1, 2018.
