Bank Lending Rules Update 2025: Key Changes and Future Outlook
Bank lending rules in New Zealand are undergoing notable changes starting December 1, 2025, primarily involving a relaxation of loan-to-value ratio (LVR) restrictions. First-home buyers and property investors can now access loans with lower deposits. The update preserves safety by relying on existing debt-to-income restrictions.
What’s Changing in Bank Lending Rules?
The Reserve Bank of New Zealand is easing loan-to-value ratio (LVR) restrictions starting December 1, 2025. Key updates include:
- Banks can now lend up to 25% of new home loans to owner-occupiers with deposits under 20% (up from 20%).
- For property investors, up to 10% of new loans can go to borrowers with deposits below 30% (up from 5%).
- Existing debt-to-income (DTI) limits remain in place to control risky lending:
- Owner-occupiers can borrow up to 6 times their income.
- Investors can borrow up to 7 times their income.
Recent Historical Context and Complementary Regulations
- Since mid-2024, the Reserve Bank introduced DTI restrictions alongside eased LVR caps, marking a pivotal shift in managing lending risk by focusing on borrowers’ ability to repay rather than deposit size alone.
- Changes to credit laws including responsible lending obligations and tighter consumer protections have been implemented, affecting all creditor types, including Buy Now Pay Later providers, further tightening the credit environment overall.
- The Responsible Lending Code and affordability assessment regulations have been updated to better assess borrower risk and hardship, supporting a more sustainable lending framework.
Future Predictions and Analysis
- Relaxing LVR restrictions points to a cautious but positive future. It should boost lending, especially for first-home buyers and investors with smaller deposits.
- Mortgage interest rates should stay mostly steady or decrease slowly through 2025 and 2026. Official cash rate forecasts range from 2.00% to 3.50%, helping improve affordability.
- Banks may create more loan products for borrowers with smaller deposits. They will also watch macroeconomic risks such as inflation and global economic shifts.
- The banking sector will likely balance easier credit access with strong risk controls. It will do this using DTI ratios and responsible lending rules to keep lending safe yet inclusive.moneyhub+3
Implications for Borrowers and Mortgage Advisors
- First-home buyers will benefit from increased access to credit with lower deposit thresholds and a slightly larger pool of lending available.
- Property investors will gain better access to loans with smaller deposits. This change may encourage more investment activity.
- Borrowers should continue to focus on their income and repayment capacity due to persistent DTI restrictions, emphasizing financial stability and affordability over deposit size alone.
- Mortgage advisors should prepare to guide clients through these nuanced changes, balancing the opportunities presented by relaxed LVR limits with ongoing attention to income limits and creditworthiness.
This update marks a significant shift aimed at moderately loosening deposit restrictions to support housing market activity while maintaining responsible lending standards that underpin financial stability in New Zealand’s mortgage sector.
