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The proportion of home lending with deposits of less than a fifth of a property's value edged up in April, a month after the Reserve Bank embarked on lifting interest rates.
About 4.3 percent of new home loans in April were at a loan-to-value ratio of 80 percent or more, up from 3.6 percent in March, according to Reserve Bank figures. Banks loaned $4.67 billion for new mortgages in the month of which $253 million was at an LVR of 80 percent or more and a further $54 million was exempt from the central bank's restrictions. Excluding exemptions, high LVR mortgage lending made up 5.4 percent of all new loans, up from 4.8 percent in March.
Earlier this month, the Reserve Bank said its restrictions on low equity home loans helped limit the potential risk caused by escalating prices in Auckland and Christchurch, leading to an 11 percent drop in the volume of sales at the lower end of the market. The Reserve Bank was expecting a reduction in property sales of between 3 percent and 8 percent, and estimates house price inflation has been slowed by about 2.5 percentage points.
The central bank limited the level of low-equity home loans banks could write from October as a means to take the steam out of a heating property market, particularly in Auckland and Christchurch, without having to resort to early interest rate hikes, which may have fuelled demand for an already elevated currency. Since then, the bank has embarked on a tightening policy, hiking the official cash rate twice to 3 percent.
The Reserve Bank said it expects to keep the restrictions in place until at least the end of the year, and won't move until it's confident the housing market is responding to interest rate increases. It anticipates getting more traction from interest rate hikes than the boom in the mid-2000s with more mortgages on floating or fixed rates of less than a year.