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New bank tools possibly days away: BNZ

Reserve Bank governor Graeme Wheeler is so worried about what a house price correction could do to the stability of the banking system that loan-to-value restrictions may be only days away, BNZ says.

Wednesday, June 5th 2013, 8:55AM 8 Comments

by Susan Edmunds

Head of research Stephen Toplis has issued a commentary highlighting how concerned the central bank is about house prices rising – from a point where they were already considered overvalued.

Toplis said the speed with which the Bank had implemented its macroprudential tools – including the ability to enforce loan-to-value restriction – indicated it wanted to use them as soon as possible.

“This reflects the fact that house price inflation continues to accelerate at a time when the central bank already considers houses to be overvalued. In turn, it believes that the banking sector is increasingly vulnerable to what will inevitably be (though we have no clue when) a future house price correction.”

Toplis said he supported the Reserve Bank’s moves to discourage speculators, particularly in Auckland.

“Be that as it may, what these prudential policy measures will do, in the very words of the central bank, is ‘reduce the actual supply of mortgage lending”. The question is: if the limited supply of new houses is the primary source of house price inflation, as we suspect, what are the longer-term implications of potentially further reducing that supply via credit rationing?”

He said New Zealanders would be the lab rats in the experiment. It would likely either mean a reduced supply of finance or increased borrowing costs.

Toplis said the macroprudential tools would have only a marginal impact on decisions about the OCR. BNZ still does not expect any movement in the cash rate until next year.

« Borrowers go longRestrictions on lending may have little impact »

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Comments from our readers

On 5 June 2013 at 9:32 am Johnny said:
Ridiculous. LVR rules will hurt first home buyers only, and have no impact whatsoever on speculators and investors.
On 5 June 2013 at 10:17 am MJP said:
Indeed, LVR rules will only hurt/hinder 1st home buyers and remove them from the equation, whilst the investors & speculators buy up to further feather their investment portfolio nest.
On 5 June 2013 at 10:36 am Darcy said:
This has already been done overseas - we are not lab rats and the results will not be awesome I suspect!

But really - is it really just days away?!
On 5 June 2013 at 11:41 am Anon said:
LVR rules will affect investors if implemented correctly. If similar rules to commercial property were exercised it would have an impact.
It is just unfortunate that the focus on NZ is to "bigger" us up and therefore immigration is not a target. As many have already commented elsewhere why not implement a similar system to Australia. That and regulating the building industry would do wonders for house prices.
On 5 June 2013 at 12:06 pm Amused said:
Agree 100% with Johnny & MJP. Can someone from the Reserve Bank please explain to New Zealanders how LVR restrictions will help stop investors, speculators (and foreign buyers) from over inflating property values in Auckland? By definition these particular purchasers don't need to borrow big mortgages from the banks here as they have either the equity or cash already at hand. Have IQ levels at the Reserve Bank dropped suddenly?

The Government has not tackled Auckland's issue of housing affordability because they keep getting bad advice by the supposed "experts" at the Reserve Bank and Treasury who think they know what the cause and solution is.
On 5 June 2013 at 3:18 pm tony said:
Forget trying to artificially adjust the house prices. Supply and demand will always win . Governments and other others like them are notoriously hopeless at achieving anything because they are too frightened to do anything drastic enough to affect change.
On 6 June 2013 at 1:45 pm Pedro said:
Maybe another tool that should be adopted by the RBNZ, along with the LVR they should also look seriously at Fractional Reserve which the banks operate, and increase the Reserve Ratio. FR was one of the major causes of the GFC.
On 6 June 2013 at 3:46 pm Kevin said:
That's it RB, dance around it, pretend you're doing something about it but don't address the real issues...NZ is a ticking time bomb...

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 ▼7.45 ▼7.09 ▼6.95
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - ▼6.85 ▼6.49 ▼6.35
ASB Bank 8.64 7.14 6.75 6.39
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - ▼6.85 ▼6.49 ▼6.39
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 ▼7.45 ▼7.09 ▼6.99
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - ▼6.59 - -
Co-operative Bank - Owner Occ 8.40 ▼6.79 ▼6.49 ▼6.35
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 ▼7.29 ▼6.99 ▼6.85
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 ▼6.69 ▼6.35 ▼6.15
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.74 7.35 6.99
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 ▼7.75 ▼7.39 ▼7.19
Kiwibank - Offset 8.50 - - -
Kiwibank Special - ▼6.85 ▼6.49 ▼6.39
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.65 7.25 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
SBS Bank 8.74 7.74 7.09 6.95
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 7.14 6.49 6.35
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.14 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Lender Flt 1yr 2yr 3yr
Westpac 8.64 7.49 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 6.89 6.75 6.39
Median 8.64 7.14 6.82 6.44

Last updated: 19 July 2024 9:21am

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