The Reserve Bank has reimposed tighter Loan to Value Ratio rules from next month at 20 per cent for owner-occupiers and 30 per cent for property investors.
The limit for investors will rise to 40 per cent from May, and that required from owner-occupiers will remain at 20 per cent.
This is in continuation of an earlier announcement by Reserve Bank in December last year that it was considering reinstating the LVR restrictions in March.
Notably, LVR restrictions were removed in April 2020 to ensure they didn't interfere with Covid-19 policy responses aimed at promoting cash flow and confidence.
Since then, there has been a rapid rise in the housing market with an increased number of record sales, based on strong mortgage lending and raising some concerns about an increased vulnerability in the event of any correction in the housing market.
Reserve Bank Deputy Governor and general manager of financial stability Geoff Bascand said, “"A growing number of highly indebted borrowers, especially investors, are now financially vulnerable to house price corrections and disruptions to their ability to service the debt. Highly leveraged property owners, in particular investors, are more prone to rapid 'fire sales' that potentially amplify any downturn.
From March 1, 2021:
• LVR restrictions for owner-occupiers will be reinstated to a maximum of 20 per cent of new lending at LVRs above 80 per cent.
• LVR restrictions for investors will be reinstated to a maximum of 5 per cent of new lending at LVRs above 70 per cent.
From May 1, 2021:
• LVR restrictions for owner-occupiers will remain at a maximum of 20 per cent of new lending at LVRs above 80 per cent.
• LVR restrictions for investors will be further raised to a maximum of 5 per cent of new lending at LVRs above 60 Per cent.