New builds will be exempted from new lending restrictions, the Reserve Bank has announced.
It comes after the building industry raised concerns the lending restrictions would affect the number of new houses being built, affecting Government efforts to increase the supply of new homes to help curb house price inflation.
The Registered Master Builders Federation had claimed the central bank policy could jeopardise the construction of up to 5000 new homes a year and they were seeing an increased number of planned new builds cancelled as a result.
Reserve Bank Deputy Governor Grant Spencer said they had decided on the exemption following consultation with the industry.
"While high LVR construction lending is only around 1 per cent of total residential lending, it finances around 12 per cent of residential building activity.
"This exemption means that low deposit lending will fall outside the 10 per cent speed limit if it is financing the construction of a new house or apartment."
Spencer said that the new exemption will apply to all loan applications for new residential builds from 1 October when the ban was introduced.
"This exemption will help to support the supply of new housing and, in doing so, reduce some of the pressure arising from excess demand in the New Zealand housing market," he said.
Reserve Bank Governor Graeme Wheeler has previously said he did not see a strong case for exempting new builds though he said in October it would take several months to analyse the data and understand the impacts of the policy.
Labour's Housing spokesman Phil Twyford said the bank had "bowed to the inevitable".
"The Master Builders' evidence that the lending limits were putting thousands of new builds at risk blew a hole in the Government's policy of trying to increase housing supply," he said.
"The mystery in all of this is why the Government didn't properly think through LVRs in the first place."
The Government had failed to consider the effect of the policy on new builds, the fact it would lock first home buyers out of the market, or that it would depress already stagnant house prices in many parts of regional New Zealand, he said.
- © Fairfax NZ News