Reserve Bank attacks housing

The Reserve Bank has published a ‘consultation paper’ that proposes a significant increase in property lending restrictions but is also encouraging banks to act quickly on their ‘proposals’.

This may be related to a predicted further drop in interest rates.

This is just one of a range of attempts to clamp down on escalating property prices.


Reserve Bank consults on new nationwide investor LVR restrictions

The Reserve Bank has today released a consultation paper (PDF 1.2MB) proposing changes to loan-to-value restrictions (LVRs) to further mitigate risks to financial stability arising from the current boom in house prices.

“The banking system is heavily exposed to the property market with residential mortgages making up 55 percent of banking system assets. Investor lending has been increasing rapidly and is a significant contributing factor to the current market strength.  The proposed restrictions recognise the higher risks associated with such lending,” Governor Graeme Wheeler said.

Under the proposed new restrictions:

  • No more than 5 percent of bank lending to residential property investors across New Zealand would be permitted with an LVR of greater than 60 percent (i.e. a deposit of less than 40 percent).
  • No more than 10 percent of lending to owner-occupiers across New Zealand would be permitted with an LVR of greater than 80 percent (i.e. a deposit of less than 20 percent).
  • Loans that are exempt from the existing LVR restrictions, including loans to construct new dwellings, would continue to be exempt.

These proposed new restrictions would take effect on 1 September 2016 and simplify the LVR policy by removing the current distinction between lending in Auckland and the rest of the country.

Mr Wheeler said: “The drivers of the housing market strength are complex and action is required on many fronts that extend well beyond financial policy.  Broad initiatives to reduce the underlying housing sector imbalances need to remain a top priority.

“A sharp correction in house prices is a key risk to the financial system, and there are clear signs that this risk is increasing across the country.  A severe fall in house prices could have major implications for the functioning of the banking system and cause long-lasting damage to households and the broader economy.

“LVR restrictions to date have improved the resilience of bank balance sheets by reducing banks’ exposure to riskier mortgages. This policy initiative is intended to further improve the resilience of bank balance sheets, and it will assist in restraining credit and housing demand.

“We expect banks to observe the spirit of the new restrictions in the lead-up to the new policy taking effect.”

Consultation concludes on 10 August.

Mr Wheeler said that the Bank is progressing its work on potential limits to high debt-to-income ratio lending, which would be a potential complement to LVR restrictions.

“We have had positive initial discussions with the Minister of Finance on amending the Memorandum of Understanding on Macro-prudential policy to include this instrument.”

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16 Comments

  1. Blazer

     /  20th July 2016

    ‘The banking system is heavily exposed to the property market with residential mortgages making up 55 percent of banking system assets. ‘…yeah right!…and the rest!

    Bill English and Nick Smith have some advice for aspiring first home buyers….’be patient’!

    Reply
    • Gezza

       /  20th July 2016

      It 55% isn’t right, in your opinion, what is the real percentage Blazer?
      And what’s your source?

      Reply
      • Blazer

         /  20th July 2016

        mine is based on gut instinct,and the way financial institutions always massage stats to make themselves look prudent.Debt as an asset,the worst is yet to come!

        Reply
  2. Blazer

     /  20th July 2016

    I notice NZ’s top 4 banks have ratings of only…AA-…..not too reassuring ,given the ludicrous price of Auckland housing.

    Reply
  3. Yes Blazer, I can agree with you here. Our Banks (read Australian Banks) have been gambling with our futures with the extent of their foreign borrowings. NZ savers are moving to dividend paying energy, tourism, and property investments (short term) or short term fixed deposits at about 3.5% for periods less than 36 months while waiting for a better return for their NZ% earned in NZ rather than use the more expensive foreign sourced funds that mortgage our forward returns from exports. Japan has been battling with the same problem for much longer and have not found a solution. Governments have a big problem when they get involved too much in controlling banking as they are then called upon to guarantee the banks solvency (remember Southern Cross PONZI?). So they need the Reserve Bank to put the screws on risky behaviour rather than get the Government (read taxpayers) funding the risk premium. The A negative assessments are indicative of the changed risk profile. If I were young again, I would be looking to mortgage my soul to buy say 5 hectares with a fixer -upper home on it and start to grow my own means of living, trading the excess at the farmers market. Much more healthy life style and not worried about commuting (but, the medical etc etc supports may not be there). Still, the real purpose of life is in the pursuit of happiness isn’t it?

    Reply
  4. Blazer

     /  20th July 2016

    you can always take hindsight to…the bank..Colonel…has to be a better way.

    Reply
    • Gezza

       /  20th July 2016

      What’s the better way you propose?

      Reply
      • Blazer

         /  20th July 2016

        It starts with banking reform.The only way for that to happen is an act of Congress dissolving the structure of the Federal Reserve.If you are interested in how world finance works and how it is controlled by a handful of people,there is a plethora of information available .Try reading the Creature from Jekyll Island as a background.

        Reply
        • Gezza

           /  20th July 2016

          I’ll check these out. I’ve bookmarked them:


          Hopefully my added 2X’s at the end will stop them displaying here & taking up space.

          Reply
          • Gezza

             /  20th July 2016

            Nup. That’s the ‘added XX’ theory shot to shit. 🙂
            It just makes them display but not play. Soz about that. 😦

            They’re two 90 minute docos entitled:

            *FEDERAL RESERVE SECRETS “Inside the Federal Reserve” Money for Nothing
            *Century of Enslavement: The History of The Federal Reserve

            Reply
  5. Brown

     /  20th July 2016

    Its interesting to hear the supposed experts at banks like ANZ prattle on about risk, correction and the new equity requirements at 40% being a bit light when a smidgen of business prudence would have seen the banks doing what is required to preserve their business and clients in the long term without a reserve bank nudge. I really hate people that whine about people not doing what is right (in their eyes) while needing legislation to do it themselves. Like all those wealthy oldies that say the pension age should be raised but put up with it being imposed in them at gun point at 65.

    Reply
  6. Good one Brown! Well said.

    “This is just one of a range of attempts to clamp down on escalating property prices.”

    I love ‘free market’ capitalism … I love the way it undoes itself …

    It’s like the flawed Shakespearean ‘tragic hero’ who brings about his own destruction …

    Reply
    • Brown

       /  21st July 2016

      Capitalism is not the problem but I agree that stupidity and greed will undo themselves if left alone to do so – that’s how it should be. Socialism requires we all be miserable to protect the top echelon of troughers.

      What annoys me is that the disaster that is Auckland’s now infects everyone else as well.

      Reply
      • @ Brown – Yes, “the disaster that is Auckland’s now infects everyone else as well.”

        ‘Auckland’s disaster’ is the symptom. The spreading infection is neoliberal disease. It also sucks the life out of regions, provinces and small communities and then blames them for not “pulling themselves up by their bootstraps” or creating new, entreprenuerial, efficient, cutting-edge digital opportunities based on competitiveness and ‘productivity’ …

        The spin is a symptom too!

        I wonder if there’d be any way of determining whether there are more or fewer ‘troughers’ now than in the evil old ‘socialist’ days, which, of course, were just a different mix of capitalism-and-socialism?

        I wonder why, ultimately, we don’t have ‘real’ hard-core capitalism …? Poor Roger eh? Unfinished business and we’re never gonna know …

        Reply

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