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


Investor mortgage lending restrictions

Friday 08 July 2016 04:27 PM

National roll-out for investor mortgage lending restrictions fairly straightforward, banks say

By Paul McBeth

July 8 (BusinessDesk) - The country's banks should find it relatively easy to deal with a national limit on the level of low-equity mortgage lending for investors given they're already in place in Auckland, according to their national lobby group.

Reserve Bank deputy governor Grant Spencer yesterday highlighted the persistent risk posed to the nation's financial system by the boom in property prices, with housing loans accounting for about 55 percent of lenders' total assets. Investors are seen as the biggest threat because they don't have the same incentive to keep meeting interest repayments as owner-occupiers, who might have to move out of their home if they default on a bill.

The central bank has come under increasing pressure to do something about the property market due to its mandate for maintaining financial stability, but has ruled out interest rate hikes saying they would drive inflation below the 1-to-3 percent target band over the medium term.

The bank's other options are to use macroprudential tools such as the loan-to-value ratio limits on residential lending, first introduced in late 2013 in an effort to cool down the housing market. Spencer said the bank could impose a single national LVR ratio limit across the nation, which could be introduced by the end of the year. Another would be to adopt a new debt-to-income limit, which would tie mortgages to salaries, or changing the capital requirements banks need to hold against their books.

Bankers Association chief executive Karen Scott-Howman said the country's lenders have already got systems, governance and processes in place that would make a national roll-out the existing restrictions for Auckland investors, which requires them to have a deposit of at least 30 percent, easier than the other options touched on by Spencer.

"It depends on whether it's a nationwide investor limit or an investor limit in Auckland and other targeted limits by regions - the devil will be in the detail," Scott-Howman said. "It's sensible signalling and a prudent approach to making policy."

Scott-Howman said the proposed debt-to-income ratios would take longer because they need Finance Minister Bill English to add it to the Reserve Bank's macroprudential toolkit, and would then need to go through a consultation process akin to that in 2013 when the LVR restrictions were first introduced.

In a statement, the Property Institute, which represents commercial and residential property managers, valuers and advisers, warned Spencer's timeframe may spur a flurry of investor activity in the interim, while the Property Investors' Federation said it would only cut rental supply and drive up rental prices.

Scott-Howman said the banks are already responding to the Reserve Bank's earlier warning it may turn to macroprudential tools to try and quell some of the demand in the housing market and as credit conditions change.

"The banks are always going through the process of de-risking to cope with market conditions, and are making regular adjustments to their behaviour," she said.

Rapidly increasing house prices have been a headache for policymakers, who are contending with record net inflows of migrants and a shortage of available properties. At the same time, historically low interest rates have fuelled demand in an economy growing faster than most of its peers.

"The low cost of credit is making higher debt levels affordable, particularly for investors who can deduct interest costs from taxable income," Spencer said. "Residential investors are accounting for an increasing share of house sales and new mortgage credit."

Auckland Council's unitary plan is seen as a key plank to free up land in the country's biggest city, where rising prices are most acute, though Housing Minister Nick Smith's final national policy statement is also expected to lift supply over time, while the opposition Labour Party is set to announce the other major legs of its housing policy this weekend.

Spencer yesterday said the policy response needed to be "a team effort", and threw the bank's support behind the introduction of urban development authorities to fast-track planning and consenting progress. He also said the government should review the tax advantages of investing in residential property and whether the country's rapid net inflow of migrants meant migration policy was achieving the appropriate numbers of people with the right skills.

Prime Minister John Key today reiterated his view that the Reserve Bank should introduce new LVR restrictions sooner rather than later to quell some of the investor demand for property. Housing Minister Nick Smith has previously said he wants to skew the market in favour of first home buyers, though ministers have resisted calls to enact policies that bring down prices, instead preferring a slower pace of increases.



© Scoop Media

Business Headlines | Sci-Tech Headlines


Infrastructure Commission: Te Waihanga Releases Report On Water Infrastructure

The New Zealand Infrastructure Commission, Te Waihanga’s latest discussion document highlights the importance of current reforms in the water sector. Its State of Play discussion document about water infrastructure is one of a series looking at the ... More>>

Sci-Tech: Perseverance Rover Lands On Mars – Expert Reaction

NASA has landed a car-sized rover on the red planet to search for signs of past life. The vehicle has more instruments than the four rovers preceding it, and it’s also carrying gear that could help pave the way for human exploration of Mars. The ... More>>


ASB: Quarterly Economic Forecast Predicts OCR Hike As Early As August 2022

Predictions of interest rate rises have been brought forward 12 months in ASB’s latest Quarterly Economic Forecast. Chief Economist Nick Tuffley now expects the RBNZ to begin raising the OCR from its current level of 0.25% as early as August ... More>>

Real Estate: House Price Growth Rates In Hawke’s Bay Skyrocket Ahead Of Rest Of New Zealand

Hawke’s Bay is leading the property ‘pack’ proving a post lockdown land of milk and money, continuing to outstrip the rest of the country with the highest annual growth rate in house price values. But experts warn an overheated market is fast ... More>>

ACT: Matariki Almost A Half Billion Dollar Tax On Business

“Official advice to the Government says an extra public holiday at Matariki could cost almost $450 million,” ACT Leader David Seymour can reveal. “This is a perfect example of the Prime Minister doing what’s popular versus what’s responsible. ... More>>

Genesis: Assessing 6,000 GWh Of Renewable Generation Options For Development By 2025

Genesis is assessing 6,000 GWh of renewable generation options for development after starting a closed RFP process with 11 partners. Those invited to participate offer a range of technologies as Genesis continues to execute its Future-gen strategy to ... More>>

OECD: Unemployment Rate Stable At 6.9% In December 2020, 1.7 Percentage Points Higher Than In February 2020

The OECD area unemployment rate was stable at 6.9% in December 2020, remaining 1.7 percentage points above the level observed in February 2020, before the COVID-19 pandemic hit the labour market. [1] In December, the unemployment rate was also stable ... More>>

Stats NZ: Unemployment Drops To 4.9 Percent As Employment Picks Up

The seasonally adjusted unemployment rate dropped to 4.9 percent in the December 2020 quarter, from 5.3 percent in the September 2020 quarter, Stats NZ said today. Last quarter’s unemployment rate of 5.3 percent followed the largest increase observed ... More>>