Ways around LVR restrictions
Borrowers taking out unsecured “top-up” loans to circumvent loan-to-value speed limits seems to be all right by the Reserve Bank.
Friday, June 28th 2013, 7:12AM 
2 Comments
by Susan Edmunds
RBNZ deputy governor Grant Spencer spoke yesterday on macroprudential policy and the housing market.
He said the overheated housing market was a threat to future financial stability and the Reserve Bank was seriously considering the use of macroprudential policy.
A fear of pushing the New Zealand dollar up while inflation was low was the main restraint on using interest rates to try to tackle the market, but he said the Reserve Bank also did not think the housing market was an inflationary pressure.
Of the four macroprudential tools on offer, a loan-to-value restriction was the only thing that would cool house price rises, he said. Counter-cyclical capiltal buffers, sectoral capital requirements and minimum core funding ratios are all designed to give banks more stability in the event of a downturn, not calm a frothy market.
Submissions on LVR limits close next week and it is expected that the rules could be implemented within the next few months. They will only apply to new lending.
Westpac economist Michael Gordon said the Reserve Bank seemed ready to accept some circumvention of the rules. He said top-up loans were common in Sweden, which has LVR restrictions.
“Since unsecured loans tend to carry much higher interest rates than secured mortgages, they would still serve the purpose of restraining the demand for credit.”
He said the limits were not the complete housing market solution and interest rates were likely driving prices more than the Bank would admit. “Macro-prudential tools such as LVR restrictions only address the symptoms of a hot housing market, not the underlying causes, whatever they may be.”
Some commentators have said that the housing market is not in bubble territory because the rate of credit growth is not as high as was seen at many points last decade.
But Spencer said credit growth, which is increasing at a rate of more than 5% year-on-year, is reported net of debt repayments, which have picked up due to low interest rates.
He indicated the Bank would get a clearer picture of the housing market from indicators such as new mortgage approvals and sales values.
| « Loan restrictions could help maintain stability: RBNZ | Tools 'would have worked in last boom' » |
Special Offers
Comments from our readers
On 28 June 2013 at 9:41 am Jeff Royle said:
We've been providing top ups for ages, nothing new and anyway if the restrictions come in all they will do is hinder ordinary Kiwi first home buyers and do nothing to solve the real issue which is supply. Bad move. On 5 July 2013 at 2:05 pm Tony said:
The issue which no one seems to want to be the bad guy in delivering a strategy in is the continued ability to ride the tail of property being a tax free opportunity to make money. A capital Gains tax on properties over and above your personal home and 1 other would slow down the number of people simply buying for tax free profit. This has to have an effect on the number of buyers competing for the same properties and with less demand prices could begin to stabilise. Building more houses simply means more people jumping on the investment wagon, making it a taxable activity that is inclusive of a CGT is what is needed. Sign In to add your comment
|
|
Printable version |
|
Email to a friend |
