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The term “macro-prudential tools” has to be one of the words, or phases of the past year.
A year ago no one knew what these things were, now it has to be one of the most used terms in the financial world. We’re talking about speed bumps, LVR restrictions, counter-cyclical capital buffers and more. Hardly something you would think get people going, but they certainly have become a big talking point for house owners, property investors and borrowers.
The big guessing game is when will the Reserve Bank actually use the first of its new tools?
Speculation at the moment suggest the end of this month or September.
However, maybe all this talk and consultation might mean the central bank doesn’t need to implement LVR lending restrictions.
Banks have a massive risk-aversion to governments and officials dictating what they can and can’t do.
There is no doubt they have been lobbying extremely hard behind the scenes to get the best outcome they can – which would be no formal restrictions.
It looks like banks are starting to self-regulate.
To understand how hard the Reserve Bank’s job is look at this comment from its governor, Graeme Wheeler. “He is reported as say that “the Reserve Bank would be relying on the cooperation of the trading banks” to make the tools work.
LVR restrictions hardly needed
In the recent mortgagerates.co.nz survey of economists we asked where they expected the LVR restrictions to be placed, ie: what percentage of lending would be allowed above the 80% mark.
Many of the bank economists didn’t answer the question. Of those who did, they suggested it would be around the 10-15% mark.
While the next set of data on lending is now due to start coming out until the end of this month we have been asking banks what percentage of their new lending is in the low equity space.
While some gave point blank refusals to provide information others gave indications where they were at. For instance BNZ said low equity lending was around 15% of its business. Westpac also said their numbers were around this mark too.
In recent months it appears that the big banks are cutting back on their high LVR lending.
We are also hearing anecdotal evidence the banks won’t write high LVR loans at the moment.
One non-bank lender said the big banks are turning away perfectly good deals in the low equity space. These non-banks are willing to write these loans instead.
It maybe that the trading banks are trying to show the Reserve Bank they will voluntarily take on restrictions as opposed to having the requirement forced on them.
Assuming this is the case it also shows that the policy is unlikely to work. Recent sales numbers show the housing market is still continuing to steam ahead, notably in Auckland and Christchurch.
As we have seen lenders will find ways around LVR restrictions. A classic example is Westpac’s new Family Springboard product.
While it denies the product is a move to get around restrictions, that is certainly a byproduct.
It won’t be long until other banks copy what is a simple and elegant solution to a manufactured problem.
Then of course there is the whole question of the non-bank sector which will fill any voids in the market.
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I had trouble with getting a small loan $68500 to buy a low priced house earlier in the year. Seems banks only want to lend on more expensive dwellings (so much for supporting borrowers of low priced homes), so I had to raise a higher mortgage against a previously unencumbered property.