Wednesday, November 28th 2018, 9:30AM

Banks will be able to provide 20% of their owner-occupier loans to borrowers with a deposit of less than 20% while lenders will be able to allocate 5% of new investor loans to borrowers with less than a 30% deposit.

The changes, which were unveiled in the central bank’s Financial Stability Report, mark a gradual relaxation of LVR restrictions designed to cool the housing market.

Current LVR rules stipulate that banks can lend only 15% of their book to owner-occupiers with a deposit of less than 20%, and 5% of their investor loans to those with a deposit of less than 35%.

Reserve Bank Governor Adrian Orr says that risks to New Zealand’s financial system have eased over the past six months although vulnerabilities persist.

In particular, households remain exposed to financial shocks due to their large mortgage debt burden, he says.

But slower household lending growth, reduced high LVR lending, and slowing interest-only lending rates had reduced risk in New Zealand’s financial system.

In the Financial Stability Report, the Reserve Bank predicts slow growth for the long term due to government measures and supply initiatives including KiwiBuild.

Orr says house price growth has also slowed, particularly in Auckland, and they think it will remain low for some time, particularly as some Government initiatives are likely to weaken demand and support supply.

“The longer that house prices grow slowly, the less likely it is that they will fall sharply in the future.”

He adds that the Reserve Bank will further relax LVR rules in the coming years, as long as risks “continue to diminish”.