The Reserve Bank of New Zealand Te Pūtea Matua is proposing to loosen borrowing restrictions to reflect the current lowered risks in the financial system.

Deputy Governor Christian Hawkesby says the current mortgage loan-to-value ratio (LVR) restrictions, which were put in place in November 2021 when risks were elevated, may now be unnecessarily blocking otherwise creditworthy borrowers from accessing credit.

He says the restrictions built resilience in the financial system, which have stood strong in the past year as house prices have fallen.

"Our assessment is that the risks to financial stability posed by high-LVR lending have reduced to a level where the current restrictions may be unnecessarily reducing efficiency.

"In particular, impeding the provision of credit to some otherwise creditworthy borrowers, which is not proportionate to the level of risk that we see."

Hawkesby says the current financial risks are lower than they were in 2019, as national house prices have fallen towards a level that is more consistent with medium-term fundamentals and the probability of a further large correction in house prices had reduced.

"Alongside this, lending conditions have tightened significantly as banks' debt servicing assessments allow for higher interest rates."

Hawkesby says from June 1, the Reserve Bank is proposing to LVR restrictions from:

• 10 per cent limit for loans with LVR above 80 per cent for owner occupiers, and
• 5 per cent limit for loans with LVR above 60 per cent for investors.

to:

• 15 per cent limit for loans with LVR above 80 per cent for owner occupiers, and
• 5 per cent limit for loans with LVR above 65 per cent for investors.

The Reserve Bank is now consulting on the implementation of this proposal with registered banks over the next two weeks.

-RNZ.