The central bank has released a second housing capital consultation paper that reviews how housing loans should be measured.
The thrust of the paper is to actually quantify what gets counted in the L and V part of the LVR equation.
Reserve Bank Deputy Governor Grant Spencer said that it is desirable to be more precise about how the loan and valuation terms are defined and calculated.
“The aim of the proposal is to enhance the consistency of these definitions for all banks subject to the LVR restriction and capital requirements for housing loans,” he said.
However The Co-operative Bank chief executive Bruce MacLaughlin told the NZ Mortgage Magazine’s* “Round Table” discussion recently that this was a big issue and one of the grey areas of the LVR restrictions.
In the RBNZ discussion paper the bank proposed that credit card debt and personal loans should be included in the calculations as they could be used to top up deposits.
It said that excluding these types of debt could undermine the LVR measures "particularly if borrowers became tempted to use their credit card facilities or personal loans to raise or increase the deposit needed to obtain a mortgage".
Download the consultation paper here
*The NZ Mortgage Magazine’s Round Table discussion will be published next week.
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