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Thursday 11 July 2024  Add your comment
One bank cuts home loan rates

Westpac has cut three of its home loan terms between 10 and 25 basis points.

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LVR move's effectiveness uncertain: Wheeler

Loan-to-value speed limits won’t be removed until the Reserve Bank is convinced it won't prompt a resurgence in house prices, governor Graeme Wheeler said this morning.

Thursday, September 12th 2013, 9:47AM 8 Comments

by Susan Edmunds

He said there was some uncertainty on the impact of the restrictions, which start at the end of the month.

The official cash rate was kept on hold at 2.5% and Wheeler said it was not expected to move until next year.

The extent and timing would depend on movements in the exchange rate and to what extent house price inflation spilt over into the rest of the economy.

But he said that could be affected by the effectiveness of LVR speed limits. Banks will be required to keep their high-LVR lending to less than 10% of their loan books from the beginning of next month.

The Bank expects the move will restrain house price growth by 1% to 4% over the next year.

Wheeler said it was helpful that a number of mainstream banks had already started to increase their low-equity premiums. “There are fewer special offers in the market and there’s anecdotal evidence that it's getting more difficult to get high LVR loans.”

He said most of the impact of the speed limits would be felt over the next 12 months. Quarterly house price inflation is expected to ease next year.

Wheeler said the Government had asked for first-home buyers to be exempted from the LVR rules but they made up 40% of high-LVR borrowing.

He said his wariness was informed by his experience living in the United States. When the global financial crisis hit, 25% of US mortgage holders were placed in negative equity.

“You saw median real household wealth fall by 39% between 2008 and 2010. Clearly house prices were overvalued in the US and they’re significantly overvalued in New Zealand. To the extent that you did get a rapid correction in house prices, that would have very significant effects on the economy…. The most severely affected would be those who came in with very low deposits.”

Wheeler said house prices were significantly overvalued, which created stability and inflation risks.

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Comments from our readers

On 12 September 2013 at 3:11 pm Amused said:
He (Wheeler) said his wariness was informed by his experience living in the United States. When the global financial crisis hit, 25% of US mortgage holders were placed in negative equity.

The key difference been in New Zealand Dr Wheeler is that we have a severe shortage of housing stock and available spare land. Our population is growing (especially Auckland) and the ratio of new homes built each month to physical buyers seeking houses is getting worse every year. Thanks to the Government (and Reserve Bank) not acknowledging the impact of overseas residents buying residential property in Auckland the limited supply of housing stock there is been even more squeezed. Simple economics Dr Wheeler - when demand exceeds supply you create an environment where house prices are inflated but also they will not drop in value.

To try and say that loans written by the New Zealand banks above 80% are at risk of falling over because of what happened in the US several years ago is totally illogical. The majority of loans that went bad in the US were due to the borrowers themselves defaulting. These people were never screened properly by the lenders/banks that approved them the mortgages in the first place! Our banks here have operated quite differently thank you and continue to do so to this day. Clearly you are not aware of this fact Dr Wheeler which worries me greatly.




On 12 September 2013 at 4:56 pm w k said:
Academia based their argument on theories (may or may not, most of the time not, work in practice), and practitioners based their argument on practice (many, like myself, don't give a stuff about theories), that is hands on experience. And both hardly ever agrees.

The most unfortunate and frustrating thing I find is that, academia are the ones who writes regulations and dictates how one should run their affairs. If academia are that smart, I wondered how many has ever ran a successful business employing tens and hundreds of employees?

And to add to amused, US lending policy before the crash was different to NZ banks, besides, CDOs, sub-prime, etc. do not come from NZ, they all came from the US. And yes, Dr Wheeler does worries me too, if he cannot compare apple for apple.
On 13 September 2013 at 10:01 am CJM said:
"Our banks here have operated quite differently thank you and continue to do so to this day. Clearly you are not aware of this fact Dr Wheeler which worries me greatly."

You mean because NZ/Aust banks did not fall over in the GFC (once given a total Government guarantee) they can't possibly get into trouble in future (even though the Government wants to avoid having to bail them out again)?

The RBNZ are saying they think house prices are significantly overvalued. This implies they think the banks are making a mistake lending to people at such high LVR.

If house prices fall back to a reasaonble level, those mortgages will be underwater. And history says that can be dangerous for any economy.

The RBNZ are saying the banks are wrong on their house lending. They do not want them to take as much risk that house prices stay high or rise higher, so they are trying to stop them.

That is kinda what a Reserve Bank is for.

In terms of your other drivers of house prices - they are not anything the RBNZ can control - except that they clearly do not believe any of those supply/demand factors justify current house prices.

The RBNZ is playing the cards they are dealt. They can't fix house prices. But they can say prices are too high, and stop banks making a mistake lending as if prices are not too high.
On 13 September 2013 at 11:37 am Jeff Royle said:
Amused, I totally agree, what happened in the States bears no relation in any way to what is happening in NZ.
On 13 September 2013 at 11:57 am Amused said:
Agree with you w k - these LVR restrictions by Dr Wheeler to try and control house prices are very much an academic’s exercise. One man’s experience of what he saw happen in the US during the GFC is hardly good (or smart) rationale to apply policy to a completely different economy and housing market like we have here in New Zealand. I could not be more unimpressed (and worried) at the thinking of the current Reserve Bank Governor.
On 13 September 2013 at 1:05 pm CJM said:
"I could not be more unimpressed (and worried) at the thinking of the current Reserve Bank Governor."

Really? Weird.

All he has done is said he thinks inflation pressures are building and house prices are too high.

Standard central banks response: raise interest rates.

But he has said in a world of ultra low interest rates, raising rates in NZ could just put pressure on the NZD. That will eventually ease inflation pressures, but in an undesirable way.

LVR restrictions may (or may not) lessen the amount he needs to raise rates.

For me a central bank using LVR when worried about domestic inflation is like a doctor telling you to give up smoking and exercise more. It is pretty costless thing to do and unlikely to be wrong.

What terrible economic thing can happen as a result - a few people have to delay buying a house?

Of course if you don't think inflation pressures are rising and/or house prices are too high, then you would disagree with him.

But he is paid to make that call. And he presents a lot of evidence to try and justify his decision.
On 13 September 2013 at 4:35 pm Amused said:
@ CJM - are you employed by the Reserve Bank?

Domestic Inflation pressures rising? Where? We are well off that happening in New Zealand yet. No impact from the Christchurch rebuild so far and that's still yet to really happen. Last time I checked inflation was running below 1%. Hardly an area for concern then.

Yes houses prices are far too high in relation to NZ incomes but that is due to a lack of physical stock. Supply vs demand. Allowing overseas residents to be able to buy property in NZ (especially in Auckland) is only seeing the limited stock there be inflated at the auction houses of Barfoot and Thompson. Come watch an auction and see what is happening up here and who is buying the majority of houses!

The terrible thing that can happen now (and will!)is that rather than a young Kiwi couple purchase their first home that house they were going to buy will be owned by an older investor instead as a rental or purchased by an overseas resident. Just the kind of thing we want to encourage in New Zealand - NOT!

Considering the NZ taxpayer pays Dr Wheeler's salary we should expect and demand to have someone in charge who is actually aware of what NZ's housing issues really are (and their causes). I have yet to see any evidence that Dr Wheeler understands what is going on.







On 16 September 2013 at 10:50 am CJM said:
"are you employed by the Reserve Bank?"

Nope, and never have been.

"Domestic Inflation pressures rising? Where? "

The RBNZ have laid out their view on why they think inflation WILL rise in future and why there is not need to keep interest rates are historic lows. You may disagree. I may disagree. But they set policy on what they think will happen.

"that is due to a lack of physical stock"

You do get Wheeler is not Prime Minister? The RBNZ has limited powers.

But they can put controls on bank lending. This does two things. First it reduces the financial risk to the economy if house prices were to fall. Second, it reduces housing demand somewhat.

If you are worried about evil foreigners, speculators, or lack of supply - then complain to those who control those policies.

Note if some other agency did announce a policy which would reduce house prices significantly, the RBNZ would probably like to have LVR in place anyway to help protect the banking system.

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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 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.14 6.79 6.65
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 - 7.14 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.74 7.39 7.25
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 - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 7.29 7.15
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 6.89 6.55 6.35
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 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
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 6.65

Last updated: 11 July 2024 1:26pm

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