It may soon be a little easier to get a home loan.
The Reserve Bank has flagged that it is evaluating whether to ease restrictions on lending to borrowers with small deposits.
At the moment only 15 per cent of new lending can be to borrowers with less than 20 per cent deposit, and 5 per cent of lending to investors with less than 35 per cent.
New properties are exempt from the restrictions.
The introduction of the investor rule in particular has been credited for taking the heat out of the Auckland property market.
In a speech to the UBS Australasia Conference in Sydney on Tuesday, deputy governor and head of financial stability Geoff Bascand says it was pondering the future for the loan-to-value restrictions (LVRs).
"Loan-to-value ratios were introduced to address elevated risks in the housing market. We keep LVR settings under regular review. The question we are assessing in the upcoming Financial Stability Report is whether the same restrictions are needed in the current environment, where debt levels remain high but are not deteriorating, now that bank lending standards have tightened significantly and rapid growth in credit and house prices have stabilised. If these conditions continue, we expect to gradually ease the policy in coming years."
Geoff says the restrictions had done the job they had been intended to do. At the time the LVR restrictions were introduced, low-deposit loans exceeded 20 per cent of all outstanding loans.
He said two-thirds of systemic banking crises around the world had been preceded by a housing boom and bust.
"Highly indebted households are vulnerable to shocks, such as higher interest rates or unemployment, that reduce their debt servicing capacity. This can lead to households cutting their consumption, selling their house or, if the shock is severe enough, defaulting on their loans."
Household indebtedness has increased dramatically in New Zealand in the last 30 years.
In 1988, the average household owed around $16,000 in debt and had an income of around $35,000 – a debt-to-income ratio of 46 per cent.
By the end of 2017, this ratio had risen to 168 per cent, following a ten-fold increase in average household debt to nearly $160,000, while average incomes had only slightly less than tripled to $95,000.
Geoff says the LVR rules had been an important mitigant to the significant increase in financial system risks associated with mortgage loans over the past five years. "By improving the resilience of household balance sheets, the policy is expected to lower the numbers of households that are forced to sell their house or significantly reduce expenditure in a severe downturn."