Reserve Bank Moves to Ease Restrictions, Giving First-Home Buyers a Boost

Under the current framework, only 20 percent of new lending to owner-occupiers can be issued to borrowers with deposits below 20 percent of a property’s value.

In a development welcomed by Finance Minister Nicola Willis, the Reserve Bank of New Zealand (RBNZ) has announced plans to relax restrictions on bank lending, potentially paving the way for more Kiwis to achieve home ownership. The proposed adjustments to the loan-to-value ratio (LVR) rules could make it easier for first-home buyers and property investors alike to secure financing under more flexible conditions.

Making Home Ownership More Attainable

“Home ownership is part of the Kiwi dream,” said Finance Minister Nicola Willis. “Relaxing the restrictions on the amounts banks can lend will make it easier for Kiwis to get a foot on the property ladder.”

Under the current framework, only 20 percent of new lending to owner-occupiers can be issued to borrowers with deposits below 20 percent of a property’s value. The Reserve Bank is now proposing to increase that cap to 25 percent starting 1 December 2025. If approved, this shift will allow banks to offer more loans to first-home buyers who struggle to save large deposits amid high property prices and rising living costs.

Proposed Adjustments for Property Investors

The RBNZ has also proposed increasing the proportion of lending to residential property investors who have deposits of less than 30 percent—from 5 percent to 10 percent. This change is intended to ease pressure in the property investment market and potentially stimulate new supply, particularly in regions with lower housing affordability.

While the move may raise concerns about overheating the housing market, the central bank maintains that the broader lending environment remains well-regulated and stable, thanks to complementary measures such as debt-to-income (DTI) limits.

A Balancing Act Between Stability and Accessibility

The Reserve Bank introduced DTI restrictions last year to ensure borrowers do not overextend themselves financially. These restrictions set maximum loan sizes based on borrowers’ income levels, effectively reducing systemic risk to the financial system.

According to the RBNZ, these DTI measures have strengthened the banking system’s resilience, allowing the central bank to ease the LVR constraints without undermining financial stability. “The introduction of DTI restrictions increases the resilience of the banking system and means LVR restrictions can now be eased,” Willis noted.

Consultation and Next Steps

The Reserve Bank has begun consultations with commercial banks and other financial stakeholders on the proposed policy adjustments. The consultation process will gauge industry sentiment and assess the potential impacts on borrowers, lenders, and the broader housing market.

“I look forward to hearing the outcome of the Reserve Bank’s consultation with the commercial banks,” Willis added, underscoring the government’s commitment to improving housing accessibility while maintaining economic prudence.

Economic Context and Public Reaction

Economists have described the RBNZ’s proposal as a timely response to a cooling property market and improving inflation outlook. The combination of stable interest rates and easing credit conditions could reinvigorate housing demand, particularly among younger households who have been locked out of the market in recent years.

However, housing advocates and analysts caution that loosening lending rules must be matched with strong supply-side measures to avoid reigniting rapid price growth. They argue that boosting the construction of affordable homes, improving urban planning, and addressing infrastructure constraints remain critical to achieving sustainable housing affordability.

As the consultation progresses, the coming months will determine how quickly and effectively these proposed adjustments translate into tangible relief for prospective homeowners.