Division over when RB will bring back lending controls
ECONOMISTS are divided over when the Reserve Bank will bring back restrictions on bank lending to home buyers as concerns continue to mount about the booming property market.
Reserve Bank figures show banks did $7.3 billion of lending in September, up $1.8 billion on September last year.
In the first nine months of this year banks lent out $49.6 billion; slightly ahead of the same period last year, when it was $48.8 billion.
Westpac chief executive David McLean this week said fastrising house prices were not healthy over the medium to long term as it made it harder for firsthome buyers, increased inequality, and meant a lot of capital was tied up in housing, a deadweight asset.
ANZ chairman Sir John Key also recently expressed concern low interest rates were creating an asset bubble.
ASB economist Jane Turner said in a note last week the Reserve Bank needed to reconsider reinstating the loantovalue lending restrictions at its November financial stability review.
‘‘The RBNZ needs to recognise that the housing market risks have shifted dramatically — no longer are they facing the risk of falling house prices, but that of strongly increasing house prices.
‘‘And by doing nothing, the RBNZ faces the risk of fuelling the fire of a housing market bubble, which, if underpinned by highly leveraged buyers, can increase financial stability risks down the line.’’
Low inflation would likely support the RBNZ’s conclusion extra monetary support would still be needed for some time, she said.
‘‘Which means the RBNZ needs to consider reinstating the LVR lending restrictions at the November financial stability review — even if it means going back on its previous forward guidance.’’
But Kiwibank economists believe the Reserve Bank will wait until May to reimpose the lending limits.
‘‘The collective voice calling for the RBNZ to reinstate LVR restrictions is growing louder.
‘‘But we think that the RBNZ will wait until next May to reimpose speed limits.’’
In a note the Kiwibank economists said while the returns of LVRs were inevitable, the share of high loantovalueratio lending was growing, but the share of total lending was still below the rates seen in 2013 before the restrictions were brought in.
‘‘Also LVRs are a tool designed to derisk the financial sector, and not improve housing affordability. New Zealand’s fragile economy remains the major risk to financial stability.’’
The Kiwibank economists said the exposure of banks to riskier lending was small.
‘‘Recent lending activity poses little systemic risk so far.’’
‘‘We think the RBNZ will reinstate LVR restrictions next year once the selfimposed 12month removal expires. We don’t think the RBNZ has to push the panic button just yet.’’
CoreLogic senior property economist Kelvin Davidson said it was worth bearing in mind the LVRs were removed partly to allow banks to grant payment deferrals without risking technical breaches of loan conditions and the mortgage deferral scheme remained in place until March next year.
‘‘In addition, recent comments from the RBNZ itself don’t suggest that they’re in any hurry to reverse any aspect of their wider support package — instead focusing on protecting jobs now.
‘‘Even so, the longer this upswing in mortgage [and investor] lending and the general property market continues, clearly the higher are the chances of some kind of shift on LVRs.’’ — The New Zealand Herald