NZ prime minister says there's no need for debt to income ratio tool to curb lending
By Rebecca Howard
Aug. 15 (BusinessDesk) - Prime Minister Bill English ruled out giving the Reserve Bank authority to use a debt-to-income ratio tool as part of a suite of macro prudential tools to prevent a housing market crash and said it should look at removing some of the curbs that are already in place as some of the heat comes out of the market.
"We don’t see the need for further tools. Those are being examined and if there was a need for it then we’re open to it but we don’t see the need for it… We won’t be looking at it before the election," English said in an emailed comment.
The central bank has long signalled that New Zealand's over-heated housing market is a key risk to financial stability and has already imposed a series of lending curbs around loan-to-value ratios. It has been consulting on the possible use of DTIs, which would allow the bank to limit what borrowers can borrow based on their income. According to the bank, a DTI limit would reduce the "risk of a severe housing downturn in certain circumstances, and attenuate the impact of any downturn on the wider economy."
However, the LVRs are now starting to have an impact, with house prices beginning to show signs of cooling, in particular in Auckland. Nationwide sales volumes dropped 25 percent last month compared to July 2016, with Waikato sales dropping 32 percent and Auckland sales down 31 percent, according to the latest data from the Real Estate Institute. In the wake of those numbers, Reinz called on the bank to review the LVR restrictions stating they have slowed the market and are now acting as a handbrake, in particular for first-home buyers.
On Tuesday, English also called on the bank to look at an LVR exit plan.
"It's important that the people who put them in place have thought through the conditions under which they remove the LVRs, because ideally, they are not a permanent feature of the market," English said according to Radio New Zealand.
A spokesman at the central bank said it would not be commenting on English's comments.