Reserve Bank of New Zealand Response to LVR Submissions September 2016 — RBNZ — NZ

Ref #6667693
Response to submissions on adjustments to restrictions on high-LVR Residential Mortgage Lending. Sep 2016

Summary of Final Policy Position
The Reserve Bank is tightening LVR restrictions for investors (nationwide) to a 5 percent speed limit for lending above LVRs of 60 percent from 1 October. Owner occupiers will be subject to a 10 percent speed limit for LVRs above 80 percent. � The implementation date has been delayed until October 1 (from the September 1 start date initially proposed), on the basis of submissions from banks about preapproval pipelines and implementation issues (see ‘Implementation and timeframes’ below). The existing exemptions and other rules for the policy continue to apply, with some exceptions. On the basis of feedback, the Reserve Bank has refined the case for LVR restrictions in some ways (as discussed below and in the forthcoming Regulatory Impact Statement), and corrected the wording of the relevant section of the Banking Supervision Handbook (BS19) in a couple of places. In particular:
� The scope of the construction exemption has been broadened to include properties purchased within six months of their completion from the original developer (see ‘Construction and Remediation exemption scope’ section below). � The scope of remediation exemption has been broadened to clarify that bringing properties up to a newly required standard for use (e.g. insulation standards for rental properties) can be within the scope of the exemption (see ‘Construction and Remediation exemption scope’
section below).

Introduction

On July 19, the Reserve Bank published a consultation paper with proposals to apply
nationwide limits on investor and owner occupied lending by registered banks. The new proposed limits are tighter than those that are currently in place under the LVR restriction framework. The move to nationwide restrictions would remove the current geographical distinctions in LVR limits. Submissions on the initial package of proposals closed on 10 August 2016. 37 submissions were received, including seven from registered banks that offer residential mortgage lending, six from building industry participants and four from housingrelated industry organisations.
Feedback from banks through their submissions indicated that more time would be required
to enable them to meet the new restrictions that apply to investor loans nationwide, given the pipeline of loan preapprovals made prior to the policy announcement in July. In response and to provide the banks with as much as notice as possible, the Reserve Bank announced its intention on 12 August to extend the start date for new LVR restrictions by one month to 1 October 2016.
This document reports on the submissions received and explains the anticipated changes to
BS19. In the Annex we list the names of respondents to the 19 July consultation paper. A revised draft of BS19 has been published alongside this response to submissions and a Regulatory Impact Statement (RIS) will follow shortly. Rationale for revised LVR restrictions
Respondents were generally supportive of the rationale presented for further adjustments
to LVR restrictions.
Some respondents noted scepticism that New Zealand house prices are at a rising risk from a
crash, pointing to their expectations that structural drivers such as immigration and relatively slow housing supply growth would continue for an extended period.
Several respondents argued that historical New Zealand downturns have tended to be
shallow and shortlived and that the current environment does not present an elevated threat to the stability of the financial system in New Zealand.
Several submitters argued that New Zealand large banks’ ability to pass recent RBNZ
macroeconomic stress tests suggested further macroprudential restrictions would not be appropriate currently.
Some respondents argued that tighter New Zealand credit/origination policies, together with
capital buffers (including higher capital that will be required following the establishment of a new asset class for residential investment properties), geographic spread of mortgages, and personal debt liability in New Zealand make banks better equipped to deal with a housing downturn than is the case in other jurisdictions/episodes.
By contrast, other respondents attributed recent house price growth in part to excessively
loose mortgage origination practices and light credit regulation in New Zealand.
Respondents generally agreed that LVR restrictions since 2013 have helped build bank
balance sheet resilience, reducing the financial system impact of a severe housing downturn.
Several submitters noted a preference for further tightening of LVR restrictions in Auckland
only. Respondents suggested that Auckland housing demand pressures and supply constraints were particular to the Auckland region. Recent growth in housing demand had been welcomed in some smaller provincial areas following their relative underperformance versus larger centres postGFC.
A few respondents urged tighter LVR restrictions on investors than proposed, suggesting
that proposed LVR settings were equivalent to relatively accommodative debt to income restrictions and investor yield assumptions. Tighter LVR requirements (together with other policy action such as debt servicing) were seen as reducing bank depositor exposure to rising mortgage credit risk. Response
The Reserve Bank agrees that external migration flows throughout New Zealand and the
apparent shortage of housing supply in Auckland have been important factors underpinning a sustained increase in national house price levels. However, the Bank remains of the view that these factors could change in the future and make high LVR lending at the current level of house prices relatively risky, particularly amongst investors.
The Bank acknowledges that there is little hard statistical evidence from New Zealand
showing that investors are riskier at any given LVR, but considers this to be a natural consequence of the housing market having had no severe downturns in recent history (since the early 1990s at least). The absence of a severe housing market downturn in the last 20 years is not evidence that one could not occur. House prices have also reached, or are rapidly approaching, unprecedented levels relative to income, and mortgage origination standards have eased substantially since the 1990s. Overall, we consider that historical New Zealand downturns may not be a good guide to the consequences of a future severe downturn. This leads us to look at other countries that have had severe downturns.
While origination practices in the US and Ireland preGFC differ from New Zealand in
important ways (e.g. mortgages in some US states are formally nonrecourse, and the originate to distribute model appeared to have led to some poor origination practices preGFC), we still consider that the empirical evidence from those downturns is relevant to considering what would happen in a severe New Zealand downturn, given there is no relevant New Zealand example to consider.
Stress tests conducted by the Reserve Bank, in conjunction with the Australian Prudential
Regulatory Authority, suggest that banks would remain solvent under stress scenarios involving a severe downturn in the housing market. However, the tests also highlight the likelihood that banks would remain solvent partly by cutting back on new lending. This would tend to exacerbate the downturn in the housing market by making it more difficult for prospective house buyers to access credit, at the same time as the number of distressed sales is likely to be rising. The resulting oversupply of listings in the housing market could reinforce the economic downturn by amplifying the fall in house prices and increasing debt overhang among distressed borrowers. The reduced availability of credit to other sectors would also reinforce the economic downturn. Dampening this amplification of the financial cycle is a key objective of macroprudential policy. In our judgement, these amplification channels had an important impact on economies like the US and Ireland: even though the

key financial institutions in those countries had their solvency assured (via government support if necessary), the tightening of credit standards and coincident housing downturn still had a big impact on the economy.
17. The Reserve Bank’s legislative objective is promoting “soundness and efficiency” of the
financial system. In the context of macro prudential policy, the Memorandum of Understanding on MacroPrudential Policy (MOU) agreed between the Minister of Finance and the Governor creates two specific intermediate objectives, namely providing additional resiliency buffers in the financial system, and also (where possible) dampening extremes in credit cycles. LVRs directly affect credit origination practices (that we consider are currently quite permissive).
18. In a severe downturn, even if the banks did not face a solvency threat, they would be likely
to sharply tighten home loan origination standards. The impact of this tightening on the housing market and individual borrowers will be greater if standards have been unusually permissive prior to the downturn. Thus, as discussed above, even if we could be entirely confident that the financial system would remain solvent following a sharp housing downturn, a role for macroprudential policy remains.
19. Following several years of house prices tracking broadly in line with household incomes, the
house pricetoincome ratio outside of Auckland has recently rapidly increased to around the preGFC peak of 5.3. Rapid increases in house prices could continue, given recent falls in mortgage rates, market forecasts that interest rates will remain low for some time, increases in regional migration, and very low secondary market inventories. This could present a risk to banks as (i) recent house buyers may struggle to make mortgage repayments if interest rates or unemployment rates increase and (ii) house prices are likely to fall further in a housing downturn if house price fundamentals (such as the house price to income ratio) are further from historical averages.
20. The risk of a price correction in the rest of New Zealand could indeed become significant well
before pricetoincome ratios reach similar levels to Auckland, as there is currently less evidence of a fundamental shortage of housing. Regional evidence from the United States during the GFC suggests that a region need not necessarily reach a high pricetoincome to experience a housing bust, especially if building activity rises sharply during the boom. Policy effectiveness
21. The nonAuckland owner occupied housing credit impact of the policy was seen as
potentially larger than the nationallevel estimates in the consultation paper. The impact was seen as dependent on the extent to which banks allocated the new proposed nationwide owneroccupied speed limit of 10 percent across Auckland and NonAuckland regions.
22. Submitters expected that the impact of proposed changes to LVR restrictions in dampening
the housing market and mortgage lending would be relatively modest and shortlived. Existing homeowners were seen as likely to continue leveraging near term gains in property collateral to meet LVR requirements, given submitter expectations that underlying strength in house price inflation will persist.

Specific preconditions for the removal of temporary LVR policy were requested to provide
guidance on the operation of the policy in a downswing phase of the housing cycle. Response
As discussed in the consultation paper and above, the revised LVR restrictions are designed
to enhance the soundness and efficiency of the financial system during a severe housing market downturn. New restrictions are expected to improve bank balance sheet resilience, reducing banks’ mortgage loan losses and helping to limit the extent that credit standards could tighten in a sharp housing market downturn. The restrictions are also expected to decrease the number of households that would be forced to sell properties in such a severe downturn. When the policy is enacted the RBNZ expects a small, transitory impact on house price inflation that will help reduce the probability and severity of any downturn at the margin.
Risks associated with the housing market have increased for a much longer period than
expected at the time that the LVR policy was introduced in 2013. However, the policy remains a temporary measure. There are a range of criteria that we will be looking for when deciding to remove LVR restrictions, including that house prices and credit return to a more sustainable path, and that the risk of resurgence in housing pressures following removal is acceptably low. In addition, the Reserve Bank will continue to monitor for signs that the policy is creating significant market distortions, such as a material and growing share of mortgage credit being financed by nonbank institutions that are not subject to the policy. Unintended consequences
Nonregulated entities were seen as having a greater opportunity and incentive to enter the
residential mortgage lending market under proposed changes to LVR restrictions. The RBNZ was encouraged to monitor the nonregulated market for signs of increasing disintermediation.
One registered bank submitted that LVR limits could materially reduce their lending to
medium sized enterprises that utilise residential property as security. The concern stemmed from the fact that ‘standardised’ banks (subject to BS2A capital requirements), unlike internal ratings based (IRB) banks, do not maintain a separate corporate asset class excluded from residential mortgage speed limit calculations. Prior LVR limits had less impact given the higher threshold for restrictions.
Concern was raised that higher LVR requirements will reduce the relative supply of rental
properties, increasing growth in rents.
The new rules were seen to add to the risk that customers may look to split their banking
relationships across several banks.
Response
To date, there is limited evidence that previous LVR restrictions have resulted in substantial
disintermediation, or substantial pressure on rents. The Reserve Bank acknowledges that these new tighter restrictions could increase disintermediation further, and will monitor this. We will also continue to monitor the rental market, but remain sceptical that LVRs will affect

the rental market much (as properties that are not sold to investors will be sold to owner occupiers, reducing both the supply and demand of rental properties).
31. In general, banks sometimes have discretion as to which asset class a particular exposure is
placed in under the current regulations set out in BS2A and BS2B. We have applied LVR restrictions to the residential mortgage asset class, and asked banks not to use classification policies in order to avoid the impact of the LVR restrictions. The RBNZ intends to investigate further the nature of the loans to businesses (secured on residential mortgage) which are being classified in the residential mortgage asset class, and how material a constraint on business finance this may currently be.
32. Under the combined collateral exemption investor borrowers who have their own home as
part of the collateral package will be able to borrow 80 percent against their own home and
60 percent against investment property. This exemption greatly reduces a borrowers’ incentive to ‘splitbank’ or create standalone loan structures in order to borrow more, but there may be some limited circumstances where the LVR policy encourages customers to establish multiple banking relationships. The RBNZ notes that respondents were supportive of the proposal to retain the combined collateral exemption. Collateralisation of lending across multiple residential properties was also seen to reduce overall lending risk in the financial system. Exemption and definition awareness
33. Respondents strongly encouraged the retention of all current exemption categories.
34. Many individual private submitters expressed uncertainty surrounding the use and/or
availability of LVR restriction exemptions and the scope of restricted lending. Some particular issues that drew comment were uncertainty stemming from:
� the interpretation of the combined collateral exemption, � the status of the refinancing of loans under LVR restrictions, � the definition of an investor loan, and � whether all lendingtypes backed by residential property would be within scope
35. The need to increase borrower awareness of some exemption categories was highlighted by
building industry submitters (see construction and remediation exemption scope below) and was also raised by trading banks at the RBNZ workshop on proposed restriction changes held in August. Response
36. The current revision of LVR restrictions is an opportunity to remind and highlight to
stakeholders the exemption categories available under the LVR framework. The Reserve Bank’s web resource material relating to LVRs (including new exemption definitions) will be updated prior to the implementation of the new restrictions.

The current scope of the exemptions is described in BS19. However, it is important to note
that banks are not obligated to provide lending using the exemptions (or any other lending). RBNZ policy allows certain loans to be exempt from LVR restrictions, but it is up to banks whether they think particular loans also fit their risk appetite. For example, some banks appear to have deliberately tightened internal credit policies by making their approach to some LVR rules more restrictive than the requirements set out in BS19.
An example of the issues that can arise are reports that banks are not willing to allow owneroccupying customers to buy a second home to owner occupy (with the intention of selling
the first), without being classified as a property investor. The definition of a property investor in BS2A/BS2B clearly does not require someone with this intention to be treated as a property investor. We would expect banks to undertake some due diligence with customers whose described intentions do not appear plausible (e.g. claiming more than two properties are owner occupied, or frequently buying new properties at different banks could be risk factors), but would be comfortable in general with banks treating customers buying a second owner occupied home as noninvestors. However, banks have discretion to adopt a more stringent approach if they choose to, as with any other credit decision.
Similarly, some public feedback has suggested that banks are requiring customers to reduce
the LVR on a portfolio of rental properties below 60 percent when they sell one of the properties, before the customer takes any of the proceeds of the sale in cash. The Reserve Bank considers that repaying part of a mortgage (selling one of a pool of securities) does not need to constitute a new commitment as defined by the Reserve Bank, therefore it need not be in scope for the LVRs. However, more generally, how the proceeds are split between borrower and bank when a property is sold will depend on the mortgage contract and the policies of the bank. Construction and Remediation exemption scope
Submitters widely encouraged the retention of a construction exemption to LVR restrictions
to assist in the creation of new housing stock, particularly in Auckland. Several submitters encouraged the RBNZ to increase public awareness of the construction exemption.
Several submitters noted that some lenders are applying combined collateral limits to
investors looking to leverage existing portfolio collateral for the construction of new dwellings. These submissions requested clarification of the eligibility of this type of lending for the construction exemption under revised LVR restrictions.
Other submissions suggested that the RBNZ should consider broadening the scope of the
exempt construction lending. Specifically, submitters suggested that conditions surrounding offtheplan development should be extended beyond presales of residential dwellings prior to or in the early phases of construction, to include all stages of construction including recentlybuilt housing. Similarly, allowable timeframes from approval and/or new commitment to final drawdown on completion could be extended to acknowledge extended timeframes involved in the case of offtheplan Greenfield housing developments.
These amendments were seen to not only increase the new housing supply potential
nationwide but also simplify the interpretation of the exemption by banks and their customers. The potential for speculative supply to develop into housing oversupply was seen

to be mitigated by banks internal risk management and lending practices and ongoing RBNZ monitoring of exemption usage.
44. Other submitters suggested that exempt construction lending should be broadened to
include other forms of construction that boost housing supply, such as existing dwelling modifications (e.g. minor dwelling construction).
45. Several submitters requested that the exemption for remedial work on housing collateral
(restoration of value to dwellings in exceptional circumstances, such as leaky homes) be extended to include remediation on rental properties to reach new minimum standards for rental housing (e.g. insulation). Response
46. The RBNZ continues to highlight the fact that growing imbalances in the housing market
require policy action on a number of fronts. A broad range of initiatives are necessary to increase the longterm housing supply response, particularly in Auckland, and to help ensure housing demand is kept in line with supply capacity. The construction exemption is designed to prevent any negative impact of the LVR policy on the supplyside response to housing supply shortfalls.
47. The RBNZ acknowledges that some widening in the scope of the construction exemption
would be useful in assisting the financing of new dwelling construction. All newlybuilt entire dwellings completed fewer than six months before the mortgage application will be eligible for the construction exemption, where the dwelling is being purchased from the original developer.
48. For the avoidance of doubt, the new construction exemption applies to both owner
occupiers and investors. Regardless of whether the borrower owns investment property, a loan that qualifies for the construction exemption can be exempted.
49. Renovation and redevelopment of homes on their existing site are out of the scope for the
construction exemption. A new building will need to increase the aggregate housing stock of dwellings to be considered under the exemption. Construction forms more closely resembling an extension/renovation of the existing housing stock are outside the scope of the exemption.
50. The RBNZ stresses that construction loans continue to be subject to individual banks’
internal lending guidelines, with individual banks establishing their own practices and policies relating to construction lending. The LVR policy does not prescribe a required deposit level for new builds. However, banks are likely to require a deposit that reflects the risks associated with new construction projects.
51. The RBNZ also acknowledges that standards for residential rental property have been
increased around aspects of insulation. The remediation exemption has been reworded slightly to make it clear that this is within the scope of the exemption.

First Home Buyer LVR requirements
52. Several submitters requested more accommodative first home buyer LVR requirements. This
request reflected concerns that LVR restrictions are a relatively broadbased tool that could both prevent first home buyers from entering the housing market and increase demand for rental accommodation.
53. A few submitters requested that first home buyers purchasing houses subject to tenancy
agreements (or New Zealand citizens using single investment property collateral for offshore owner occupier purchases) be exempted from investor restrictions. Response
54. LVR restrictions affect all highLVR borrowing against residential property. The restrictions
do not discriminate between owneroccupier types, other than on the size of their LVR, as there is no evidence to suggest they present different levels of risks to the banking system. However, while reasonably broad application is necessary to maximise effectiveness, the LVR framework incorporates two potential ways of mitigating potential efficiency costs/distortions. The first is through the use of speed limits rather than outright limits. The second is through the limited use of exemptions.
55. With regards to speed limits, banks will continue to have discretion to allow some first home
buyer highLVR lending as part of the (nationwide 10 percent) limit on highLVR owner occupied lending. This speed limit is substantially larger than allowed for highLVR investor lending nationwide (5 percent).
56. There is also some special treatment for lowdeposit firsthome buyers under Housing New
Zealand’s Welcome Home Loan scheme. These mortgages are exempt from the Reserve Bank’s LVR restrictions. Borrowers remain subject to any conditions applying under the Welcome Home Loan scheme, and individual bank lending guidelines.
57. Tighter borrowing constraints under the LVR policy could potentially constrain the housing
choices of some first home buyers. However, First Home Buyers (as measured by CoreLogic) appear to currently account for a similar share of new home sales in New Zealand as that seen just prior to the introduction of the LVR restriction framework in October 2013. Speed limits
58. Submitters noted that the removal of nonAuckland property investor lending from the new
combined national owner occupied speed limit denominator will result in a tightening in the availability of highLVR loans for owneroccupiers.
59. Large banks considered that the proposed nationwide investor and owner occupied speed
limits would be adequate to accommodate errors and exceptional/appropriate cases in these borrower groups.
60. Some smaller banks noted that it could be more challenging for them to accommodate
exceptional cases and manage errors under the new proposed investor speed limit. These banks typically have less ability to smooth exceptional highLVR cases over total lending flows given lower lending volumes.

One respondent noted that the defined speed limit in BS19 is based on “qualifying mortgage
lending”, which excludes exempted loans. This is true for numerator and denominator, which means that exempting lowLVR lending would be disadvantageous to banks (it would reduce the total lending that is being used to calculate the speed limit). Response
As in the 2015 changes, the Reserve Bank sees less need to allow a flow of lending at higher
LVRs to property investors. We consider that a 5 percent speed limit for investors (as with the current Auckland investor limit), in combination with the available exemptions, will allow for special cases or errors.
For the nonproperty investment limit, 10 percent of lending will be allowed at LVRs above
80 percent. This allows a more material amount of highLVR lending to owner occupiers. We have been pleased generally with how banks have appeared to use this limit since 2013, with a high proportion of lending under the speed limit going to first home buyers and relatively low DTI customers. Relative to the current restrictions, the 10 percent limit results in a tightening for nonAuckland nonproperty investors, particularly as they are now separated from the nonAuckland investor lending.
The RBNZ will maintain the six month speed limit calculation for smaller banks to help these
lowervolume lenders smooth their highLVR lending flows. The large bank speed limit calculation period will remain 3 months.
In practice, the Reserve Bank assumes that banks do not elect to exempt lowLVR loans even
if they meet the criteria for the exemption. BS19 section 13 gives discretion to banks as to whether to apply the exemption to individual loans, and there is no advantage to doing so if the loan is not highLVR: “The exemption of a loan is framed so that if a bank is unable to, or opts not to determine conclusively whether or not a particular loan commitment falls within one of the exemption categories, the loan will be a qualifying mortgage loan or qualifying increase in mortgage loan value. It is not necessary for the registered bank to exempt loans that are not highLVR loans that meet the criteria for the exemption”. Non-retail residential mortgage lending
Reporting on nonretail residential mortgage lending may require data system/process
modifications from some banks, but should be possible.
In many cases banks’ internal reporting of nonretail residential mortgage lending is not yet
fully automated. The level of detail required, provision timelines, and amount of backdating would determine the costs involved in providing this reporting item.
Banks submitted that antiavoidance provisions in current rules, capital treatment of loans,
and internal guidance/policy/monitoring/pricing of loans should be sufficient to offset the risk of LVR restriction avoidance via reclassification outside the retail residential mortgage asset class.

Response
69. The RBNZ will consider reporting requirements for nonretail residential mortgage lending
after further banking industry consultation.
Implementation and timeframes
70. Banks supported the consistent implementation of proposed LVR restrictions nationwide.
The simplified approach was seen to reduce system and process complexity for banks in administering LVR restrictions.
71. The largest implementation challenge for banks surrounded their ability to meet their preapproval pipelines by 1 September 2016 following the announcement of the new proposals
in July. Failure to adequately rundown these pipelines would likely require the cancellation of some of these preapprovals. Banks were concerned that such cancellations would cause reputational damage and inconvenience to customers and/or potentially frustrate chains of sale and purchase for houses.
72. Banks requested the implementation date be delayed by at least one month to better rundown these preapproval pipelines. An extension was also seen to assist with small banks’
limiting resourcing available to accommodate system and process adjustments associated with the proposed policy changes and new data collections. The risk of a prerestriction surge in lending was seen as low given that banks have moved quickly to follow the spirit of restrictions.
73. Large banks also requested that their proposed three month speed limit be extended to a six
month window for the first compliance period to better manage their pipeline of approvals. Some banks also suggested excluding existing preapprovals from initial speed limit calculations, or allowing an informal three month monitoring period before compliance measurement begins.
74. Implementation costs for banks were seen as relatively minor. Data systems built for
regional LVR restrictions would generally be able to deliver proposed nationallevel compliance data. Most costs would revolve around process, policy and communication of changes to the lending staff.
75. Limited system modifications would be required to reclassify property investors that have
an Auckland owneroccupied property. Moreover, this change means that data could now be harmonised with capital requirements associated with the creation of the new residential mortgage asset class in 2015.
76. The implementation timeframes were generally seen as technically feasible given existing
data systems.
Response
77. The RBNZ acknowledges that banks have acted quickly to follow the spirit of the restrictions.
This action reduces the risks of a prerestriction surge in highLVR lending. As such, the RBNZ announced on August 12 that the start date for new restrictions will be delayed one month to 1 October 2016 to help banks manage their pipeline of preapprovals.

The RBNZ notified banks of the new start date for revised restrictions shortly after
submissions on the changes closed. This advance notice should assist banks with planning the rundown of their preapproval loan pipelines accordingly. We expect that customers who had firm plans to use their preapprovals may often be able to complete their loan to new commitment stage by 1 October. In some cases banks may consider it necessary to inform some other customers that their unused preapproval needs to be reconsidered.
The RBNZ notes that at least one bank plans to shorten the period of their preapprovals for
residential mortgage loans, while some other banks had relatively short time periods already. This shortening will help mitigate the risk of recurring issues surrounding long preapproval pipelines in the event of further macroprudential policy adjustments. Possible debt servicing tools and capital restrictions
Respondents generally supported RBNZ initiatives to investigate debt servicing further,
including the possible development of standardised data metrics around mortgage serviceability.
Several submitters noted that existing internal bank assessments and processes already
consider a range of factors in assessing the mortgage serviceability of borrowers. The RBNZ was encouraged to consider these procedures when exploring the possibility of a DTI tool.
Early and extensive banking industry consultation was encouraged to consider the relevance
and operational costs/unintended implications of any debttoincome ratio tool. The RBNZ was requested to consider the scope of other regulatory changes under implementation when assessing timeframes for implementation of any DTI tool.
Some submitters suggested that capital requirements were already relatively high by
international standards and that bank balance sheet resilience had improved as a result of LVR restrictions. Stricter capital requirements were seen as unlikely to deliver a substantial reduction in housing market price pressures.
Many submitters encouraged the RBNZ to assess the impact of proposed LVR changes (and
recent residential mortgage capital changes) before considering the implementation of further macroprudential tools. Response
In coming months, the Reserve Bank will be investigating the case for using a debt
serviceability tool. The Reserve Bank is planning to engage with banks on any issues that arise as part of this investigation, and begin collecting DTI data from all mortgage lending banks.
The Reserve Bank is undertaking a fundamental review of prudential capital requirements
for registered banks over the next year. The possibility of introducing macroprudential capital buffers will be considered as part of this process.

Annex: Submission respondents
Below is a list of respondents to the Reserve Bank of New Zealand consultation paper “Adjustments to restrictions on highLVR residential mortgage lending” dated 19 July 2016. ANZ Bank New Zealand Limited ASB Bank Limited Bank of New Zealand Blomkamp Cox Bluekiwi Property Consulting Creating Communities Ltd Desmond Knowles George Taylor Grant Burson Jasvir Singh Jennian Homes Ltd Justin Coe Kiwibank Limited Michael Reddell NewBuild Home Finance Limited New Zealand Bankers Association New Zealand Property Investors’ Federation Inc Property Council New Zealand Rawa Limited Real Estate Institute of New Zealand Registered Master Builders Association Results Mentoring Pty Ltd

Rothbury
Sean Keane
SBS Bank
Scott Brydon
Southside Group Management Ltd
James Swarbrick
Talk Property Limited
The Co·operative Bank Ltd
The Home Loan Shop Ltd
Triple A Property Investments (2015) Ltd
Westpac New Zealand Limited
Four other private individuals also provided submissions on condition of confidentiality of their identities.

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