RBNZ says all banks are within the 10% 'speed limit' over the first six months of LVR restrictions

The Reserve Bank says high loan-to-value ratio (high-LVR) residential mortgage lending fell to just 5.6% of banks' new mortgage commitments for the six months to the end of March 2014.

This is well below the limit of 10% that was set when the limits were introduced in October. And the RBNZ has confirmed that all banks were within the limit at the end of the first six months.

The RBNZ has been producing monthly updates of how the banks are going at meeting the limit. However, the latest figures are the first ones to include the exemption for new builds that was announced by the RBNZ at the end of last year, but applied retrospectively to the start of the limits in October.

In the event just $53 million worth of exempt new build lending over the first six months is included in the latest figures.

The 5.6% figure for the first six months is after all exemptions. Excluding exemptions the figure is a touch under 6.8%

The RBNZ has previously expressed surprise at how low the LVR figures have gone and it appears to have over-estimated the number of loans that would be included in exemptions. The RBNZ previously expected that a 10% limit after exemptions would actually equate to a total of about 15% not including exemptions. Clearly the number of exempt loans has come in a lot less than this.

However, the banks have clearly taken an ultra-cautious position.

Failure to meet the limit could have had serious ramifications for the banks as the LVR restrictions have been included in the conditions of registration for the banks.

RBNZ Deputy Governor Grant Spencer said that the central bank's "initial assessment" was that restrictions on high LVR lending had helped reduce house price inflation.

"A more in-depth assessment of the policy and its impact on the housing market will be included in next month’s Financial Stability Report." This will be released on May 14.

The fall in bank high-LVR lending has been dramatic. In September 2013, before the introduction of the new rules, high-LVR lending was approximately 25 percent of all mortgage lending.

The restriction came into force officially on October 1 and therefore March 31 was the official end of the first six month period over which all registered banks had to comply. Future compliance with the high-LVR lending rules will be measured against a 3-month rolling average for banks with more than $100 million per month of mortgage lending (ANZ, ASB, BNZ, Kiwibank and Westpac) and a 6-month rolling average for banks with less than $100 million per month of mortgage lending.

High-LVR loans are those that are made to someone borrowing more than 80 percent of the value of the property that is mortgaged.

When the RBNZ announced last August that it was introducing the LVR speed limit from October 1, this was in response to figures showing that some banks were rapidly increasing the proportion of high-LVR lending on new commitments.

The RBNZ was concerned about a potential risk to financial stability that could occur from a sudden shock to the housing market.

First home buyers are those seen as most effected by the LVR restrictions. The Government was known to have wanted to have first-time buyer exempted, but the RBNZ was not keen on exemptions. However, it subsequently relented on exemptions for new builds.

Exempted lending categories include lending made under Housing New Zealand’s Welcome Home Loans scheme, refinancing of an existing high-LVR loan, bridging finance or the ‘porting’ of a high-LVR loan between properties.

In December the RBNZ announced that it would exempt new builds as well, following strong lobbying from the building industry.

The figures for March show that in that month banks loaned $254 million to customers borrowing more than 80% of the value of their property. That's up on the $200 million committed in February, but still just 4.8% of banks' total commitments before exemptions and a mere 3.6% after exemptions.

Anecdotally the big banks have started to move more aggressively in lending again to high-LVR customers, but that's not yet apparent in these figures.