RBNZ begins consultation ahead of tighter controls on mortgage market

The Reserve Bank has started formal consultation before imposing stricter controls on the mortgage market.

The Reserve Bank.
Photo: RNZ / Samuel Rillstone

He released backgrounders and opened a two-week consultation window on halving the amount of low-interest mortgage loans that banks can give to homeowners at no more than 10% from next month.

RBNZ Deputy Governor Geoff Bascand said house prices had risen above their sustainable level, increasing the risks of a housing market correction.

“The proposed tightening of loan-to-value (LVR) restrictions will ultimately help reduce the number of heavily indebted borrowers and strengthen the resilience of the financial system.”

The tightening of LVRs to reduce subprime loans to real estate investors at the start of the year had had an effect, but house prices had continued to rise and there had been a significant increase in higher risk loans to homeowners. occupants, said Bascand.

Recent data from research firm CoreLogic showed a 27% annual increase in the average home price, although the monthly rate of increase is slowing.

Bascand said much of the low deposit loans went to first-time buyers, but the overall risk to the financial system was increasing.

“While our stress tests indicate that the financial system is well positioned to cope with shocks such as a housing market slowdown, we are concerned about the potential future risks to economic and financial stability of allowing this borrowing to higher risk of continuing at current level. rates.”

Stricter lending rules would make it harder for first-time buyers to enter the housing market in the short term, he said.

“However, reducing house price inflation will improve affordability for first-time home buyers.”

The RBNZ also received interim approval from the government to prepare debt-to-income ratios, a measure of lenders’ ability to service loans, which it will start consulting next month, but would only be imposed on next year if necessary.

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