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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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.