Restricting the extent of high LVR lending has seen average LVRs in bank mortgage books gradually decline, with the proportion of high LVR mortgage loans on bank balance sheets falling from 21 percent to 14 percent. This has made bank balance sheets more resilient to a potential housing downturn (figure 7).
At the same time, the reduction in high LVR lending helped to dampen credit growth and house price inflation over the following year. Subsequently, from around September 2014, the Auckland market started to accelerate while house prices in the rest of the country continued to moderate. As mentioned earlier, we have identified credit-financed investor activity as an important contributor to the Auckland resurgence.