An A to Z of loan-to-value ratio (LVR) restrictions

The Reserve Bank recently announced restrictions on high loan-to-value ratio (LVR) lending. The restrictions take the form of a ‘speed limit’ that requires banks to restrict new residential mortgage lending at LVRs of over 80 percent to no more than 10 percent of the dollar value of their new residential mortgage lending. The speed limit on high-LVR lending is designed to slow the growth in house prices and housing credit, and mitigate associated risks to the financial system and the broader economy. This article sets out the framework for LVR restrictions, and explores the Reserve Bank’s early experience in operating them.