RBNZ May Extend Investor-Lending Limits Amid Housing Boomby
Deputy Governor says further rate cuts may pose housing risks
New national limits on property investors possible by year-end
New Zealand’s central bank may broaden lending limits on property investors as Auckland’s housing boom spreads to other parts of the country, Deputy Governor Grant Spencer said.
Existing rules, which require investors in Auckland to have at least a 30 percent deposit for a mortgage, could be applied nationwide by the end of the year, Spencer said in a speech in Wellington Thursday. The RBNZ introduced so-called loan-to-value-ratios on all home lending in 2013 and last year tightened restrictions for investors in largest city Auckland, where house prices have surged 78 percent since 2007.
“Given the growing housing market pressures across the country one approach would be to adopt a single national LVR limit for investors,” Spencer said. “Given that the banks have much of the relevant systems work in place, we expect that such a measure could potentially be introduced by the end of the year.”
Nationally, New Zealand house prices jumped 13.5 percent in June from a year earlier, fueled by record-low borrowing costs and soaring immigration. While the RBNZ is unable to raise interest rates to curb demand because inflation remains stubbornly low, Spencer said cutting the official cash rate further also poses risks.
“Further reductions in the OCR could pose a risk to financial stability through their effect on credit growth and house prices,” he said. “While the outlook for CPI inflation will ultimately determine the future path of monetary policy, the trade-off against financial stability risk needs to be carefully considered.”
The New Zealand dollar rose on the remarks, trading as high as 71.97 U.S. cents from 71.50 before Spencer spoke. It bought 71.90 cents at 6:39 p.m. in Wellington.
The lending rules already introduced -- and new government regulations implemented Oct. 1 to tax capital gains on property held for less than two years -- helped slow the Auckland housing market late last year. Since then, prices in the city have picked up again, rising 4.7 percent in the three months ended June to a record average of NZ$975,087 ($696,000.) Nearly half of all sales went to investors, according to government property research company Quotable Value New Zealand.
In addition, prices in other cities are climbing rapidly amid a housing shortage and as investors in Auckland look elsewhere. In the North Island city of Hamilton, prices rocketed 29 percent in June from a year earlier, Quotable Value data showed this week.
“The proportion of sales to investors nationally has grown from 34 percent in January to 39 percent in May this year,” Spencer said. “Investors have effectively used equity generated by increased valuations on their existing portfolios to raise the larger deposits needed for new acquisitions.”
The central bank is also investigating the possible use of debt-to-income ratios similar to those employed in the U.K. Spencer said the RBNZ intends to consult with banks on the viability of a DTI policy and data issues before making a decision on implementation.
Earlier this week, Prime Minister John Key urged the Reserve Bank to “get on with it” with regard to new measures to curb investor activity in the housing market, as his political opponents claim housing affordability has become a national crisis.
Spencer said the issue requires a “broad policy response” and the underlying housing shortage “needs to be urgently addressed.”