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Removal Of Mortgage Loan-to-value Ratio (LVR) Restrictions

In October 2013, LVR restrictions were imposed as a counter-cyclical macro-prudential financial stability tool. As a part of the mortgage deferral scheme, May 1st, the Reserve Bank are removing mortgage loan-to-value ratio (LVR) restrictions for 12 months, in order to lessen the impact on borrowers or lenders during the COVID-19 pandemic. This idea was decided after more than 70 submission from member of the public and industry responses on the proposal to remove LVR restrictions. Those who supported the response were locally incorporated banks because it allows them to support affected customers. Those against the policy were apprehensive due to the impact on the economy and the potential to cause financial instability. Mr.Bascand is not fearful of banks lending to high risk borrowers but is more fearful of banks becoming overly cautious. The Regulatory Impact Assessment shows that removing the restriction is a method of improving the flow of credit in the economy. At the same time, the action avoids any uncertainty around the implications of LVR limitations.


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