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Risks in new RBNZ proposal

Debt to income ratios could do the housing market more harm than good, commentators are warning.

Thursday, May 12th 2016, 9:00AM

by Miriam Bell

The Reserve Bank is “seriously considering” introducing further lending restrictions in a bid to counteract the heat in the housing market.

Governor Graeme Wheeler made the announcement in the media conference following the release of the bank’s Financial Stability Report.

While the FSR itself highlighted the bank’s concerns about the housing market, it did not discuss potential macro-prudential options.

However, Wheeler and Deputy Governor, Grant Spencer, were more forthcoming on the topic in the media conference – and it seems one strong possibility is the introduction of debt-to-income ratios.

The prospect of debt-to-income ratios was first raised last year.

At the time, the Reserve Bank said it was doing work on what might be possible in the area, but had no concrete plans to introduce debt-to-income ratios.

Now, it seems the prospect is back on the table as one of the potential tools, including a further round of LVRs, that could be used to try and cool house price growth.

No timeframes were given and Wheeler said more analysis and discussion with the Finance Minister was necessary before any decisions were made.

Finance Minister Bill English told media he was open to the idea, but that the Reserve Bank would need to do the analysis and put a proposal together first.

However, many industry commentators are not keen on the introduction of debt-to-income ratios.

Property Institute chief executive Ashley Church warned such a policy would have serious and unintended consequences for the Auckland property market.

“The number of new homes being built – the very thing that Auckland needs most – would plunge as the number of people earning enough to buy them would dwindle to a trickle.

“So the policy could very well kill off the one thing that can fix the Auckland housing crisis: the construction of new homes”.

In his view, the policy would exacerbate the existing housing shortage and this could lead to a dramatic increase in rents over a relatively short space of time.

“In an environment where every extra dollar enhances borrowing power, landlords will want to maximum income from their rentals.”

Church said the Reserve Bank’s attempts to artificially slow down demand are making Auckland’s housing situation much worse.

“History shows us that, left to run their course, property booms eventually peter out once the underlying issue – lack of supply – is resolved.”

Further restrictions are likely to miss the mark, Century 21 New Zealand national manager Geoff Barnett agreed.

The demand for housing in Auckland is relentless and the housing supply is still well short, he said.

“For better or worse any changes from the Reserve Bank won’t be able to head off the sheer growth and demand for houses in Auckland.

“Any Reserve Bank changes may see investors and buyers changing their approach. For example, they might buy an apartment or buy further out from the city centre.

“However, the buying will continue to outstrip supply which will only see prices keep going up for some time yet.”

Labour’s housing spokesperson Phil Twyford is also not a fan of potential debt-to-income ratios for everyone.

In his view, applying the policy to everyone would punish first home-buyers and people in the regions.

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Lender Flt 1yr 2yr 3yr
AIA 5.35 4.49 5.25 5.55
ANZ 5.54 5.15 5.85 6.15
ANZ Blueprint to Build 2.78 - - -
ANZ Special - 4.55 5.25 5.55
ASB Bank 5.35 4.49 5.25 5.55
Avanti Finance 5.45 - - -
Basecorp Finance 6.45 - - -
Bluestone 5.29 7.49 7.59 -
BNZ - Classic - 4.55 5.25 5.45
BNZ - Mortgage One 5.55 - - -
BNZ - Rapid Repay 5.55 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 5.55 5.35 5.94 5.99
BNZ - TotalMoney 5.55 - - -
CFML Loans ▲6.45 - - -
China Construction Bank 5.50 5.40 6.14 6.40
China Construction Bank Special - 4.45 5.19 5.45
Credit Union Auckland 5.95 - - -
First Credit Union Special 5.85 4.70 5.20 -
Heartland Bank - Online 4.00 3.85 4.70 4.84
Heretaunga Building Society 5.95 4.80 5.50 -
HSBC Premier 5.49 4.39 5.15 5.39
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.25 ▲4.29 ▲5.09 ▲5.35
Kainga Ora 5.43 4.57 5.58 5.85
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 5.00 5.55 6.19 6.39
Kiwibank - Offset 5.00 - - -
Kiwibank Special 5.00 4.55 5.19 5.39
Liberty 4.84 - - -
Nelson Building Society 5.95 4.95 5.85 -
Pepper Essential 3.44 - - -
Resimac 4.59 5.60 6.16 6.29
Lender Flt 1yr 2yr 3yr
SBS Bank 5.29 4.69 5.35 5.49
SBS Bank Special - 4.19 4.85 4.99
Select Home Loans 4.09 4.29 4.86 5.09
The Co-operative Bank - First Home Special - ▲4.19 - -
The Co-operative Bank - Owner Occ 5.45 ▲4.29 5.19 5.45
The Co-operative Bank - Standard 5.45 ▲4.79 5.69 5.95
TSB Bank 5.59 ▼5.14 ▼5.79 6.15
TSB Special 4.79 ▼4.34 ▼4.99 5.35
Unity 5.65 4.80 5.50 -
Wairarapa Building Society 5.24 4.55 5.20 -
Westpac 5.54 5.09 5.79 6.09
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.54 - - -
Westpac Special - 4.49 5.19 5.49
Median 5.45 4.55 5.25 5.52

Last updated: 19 May 2022 10:42am

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