Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


RBNZ low-equity lending limits stifle sales than expected

RBNZ’s low-equity home lending limits stifle more sales than expected

By Paul McBeth

May 14 (BusinessDesk) - The Reserve Bank’s restrictions on the level of mortgage lending with low deposits took more borrowing out of the system than expected, and have helped douse the property market’s potential risk to the nation’s financial stability.

House sales dropped 11 percent since the central bank imposed the restrictions on high loan-to-value ratio lending, with a 23 percent slump in turnover of houses under $400,000. That’s more than the bank’s estimates of a 3 percent to 8 percent reduction in house sales, according to the Reserve Bank’s six-monthly financial stability report. The restrictions were estimated to have slowed house price inflation by 2.5 percentage points.

Governor Graeme Wheeler said the country’s financial system remains sound and is well-placed to support the economy, though there are still risks emanating from the high levels of debt in the household and dairy sectors.

“Debt in the household sector remains high relative to income, and house prices are overvalued on several measures,” Wheeler said in a statement. “As a result, financial stability could deteriorate if there is a sharp correction in house prices, particularly if accompanied by a reduction in debt repayment capacity.”

The central bank limited the level of low-equity home loans banks could write from October as a means to take the sting out of a heating property market, particularly in Auckland and Christchurch, without having to resort to early interest rate hikes, which may have fuelled demand for an already elevated currency. Since then, the bank has embarked on a tightening policy, hiking the official cash rate twice to 3 percent.

The financial stability report said the LVR restrictions appeared to be having the desired effect, and reiterated deputy governor Grant Spencer’s comments last week that the bank doesn’t envisage removing them until at least late this year. The prospect of rising interest rates had also tempered housing demand.

“Although the LVR speed limit is helping to contain the risk of a sharp housing correction, house prices remain at elevated levels and have continued to grow faster than household incomes,” the report said. “Housing demand will likely continue to outstrip supply in the near term, particular with strong net immigration adding to population growth.”

Elevated agricultural debt levels, particularly in the dairy sector, were also a risk to the nation’s financial stability, as a drop in commodity prices could lead to a fall in land prices and put pressure on highly leveraged borrowers.

“Give the existing indebtedness of the sector, a significant increase in credit growth and farm prices would pose a significant risk to financial stability,” the report said. “There are also several potential global shocks, including a disruption in the Chinese economy, which could trigger a more significant decline in commodity prices and a consequent drop in collateral values specifically land prices.”

The bank noted there was increased activity in farm sales which could risk higher levels of debt being taken on, while acknowledging farmers had been using strong commodity prices to repay debt.

The report also cited a disorderly correction in Chinese lending and property markets as a risk to New Zealand’s financial stability if they increased funding costs for local banks, ad sapped demand for exports.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Pre-Budget: Computer Emergency Response Team, Assemble!

John Key told the country's first ever Cyber Security Summit in Auckland that the government had earmarked funding set up a national Computer Emergency Response Team to help prevent and act on cyber incidents in partnership with the private sector and other organisations. More>>

ALSO:

Job Cutter Goes: Mark Weldon To Step Down As MediaWorks CEO

“When I joined MediaWorks in August 2014, I had a mandate to lead a significant change programme to bring the business back from receivership into a position where it could once again be a strong competitor in the market, with a sound and sustainable future. It was a big brief, laden with inherent challenges, but I took it in good faith and have dedicated myself fully to the goal since." More>>

ALSO:

Must Sell 20 Petrol Stations: Z Cleared To Buy Caltex Assets

Z Energy is allowed to buy the Caltex and Challenge! petrol station chains but must sell 19 of its retail sites and one truck-stop, the Commerce Commission has ruled in a split decision that acknowledges possible retail price coordination between fuel retailers occurs in some regions. More>>

ALSO:

Huntly: Genesis Extends Life Of Coal-Fuelled Power Station To 2022

Genesis Energy will keep its two coal and gas-fired units at Huntly Power Station operating until 2022, having previously said they'd be closed by 2018, after wringing a high price from other electricity generators who wanted to keep them as back-up. More>>

ALSO:

Dammed If You Do: Ruataniwha Irrigation Scheme Hits Farmer Uptake Targets

Enough Hawke's Bay farmers have signed up for water from the proposed Ruataniwha Water Storage Scheme for it to go ahead as long as a cornerstone institutional capital investor can be found to back it, its regional council promoter announced. More>>

ALSO:

Reserve Bank: OCR Stays At 2.25%

Reserve Bank governor Graeme Wheeler kept the official cash rate at 2.25 percent, in a decision traders had said could go either way, while predicting inflation will pick up as the slump in oil prices washes out of the data and capacity pressures start to build in the economy. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news