New residential construction loans will now be exempt from the loan-to-value (LVR) restrictions introduced from October 1, Reserve Bank Deputy Governor Grant Spencer said.
Spencer said in a statement released this morning that the bank had consulted with the building industry and banks on the impact of LVR restrictions on residential construction activity.
While high LVR construction lending is only around 1 per cent of total residential lending, it finances around 12 per cent of residential building activity.
"This exemption means that low deposit lending will fall outside the 10 per cent speed limit if it is financing the construction of a new house or apartment," he said.
"However, any new low deposit construction loans will still need to meet the internal risk requirements of the lending banks," he said.
The new exemption will apply to all qualifying construction loans from October 1, 2013.
Spencer said the exemption would help to support the supply of new housing and, in doing so, reduce some of the pressure arising from excess demand in the New Zealand housing market.
The bank introduced limits earlier this year because it saw high LVR lending as putting the financial system at risk.
This is a sensible and welcome backdown from the Reserve Bank. We are sure that John Key and Bill English would have been much happier had new homes been exempted from the LVR rules in the first place. But given the independence of the Reserve Bank, the Government had no say-so.
There's no argument that we have issues with housing supply in New Zealand. Whilst today's move from the Reserve Bank won't solve that problem, it is a start towards alleviating it.