New Zealand tightens mortgage loan rules, except for new houses

WELLINGTON: The Reserve Bank of New Zealand, as part of an effort to cool the hot housing market, raised deposit requirements yesterday for home buyers taking out a mortgage, unless the loan was being taken for a newly built house.

As of Oct 1, new rules mean residential property investors will generally need a 40% deposit for a mortgage loan while owner-occupiers will need a 20% deposit.

The new rules also no longer distinguish between the nation’s largest city of Auckland and the rest of New Zealand.

The central bank also broadened an exemption on newly built homes from the higher deposit requirement to avoid dampening supply.

Previously borrowers would have needed high deposits for new homes once the build had progressed beyond “ground work” or laying the initial foundation. As of Oct 1, first homes that have been built within the previous six months and were bought from a developer are exempt from the new rules.

“We’ve always argued that increasing supply is the most important step towards addressing the challenges facing the Auckland housing market – but achieving that will require a massive increase in investment by the private sector,” said Property Institute of New Zealand CEO Ashley Church.

New Zealand house prices have soared on the back of strong immigration, low mortgage interest rates and restrained housing supply, with much of the push coming from investor property owners. The strain is particularly evident in Auckland where prices are up more than 80% since a prior peak in 2007.

Central bank data show that total new residential mortgage lending was NZ$6.3 billion (RM18.8 billion) in July. Of that NZ$2.4 billion was investor property.

The central bank has long signaled that the rise in house prices is a risk to financial stability.

The change will likely encourage increased supply as “developers can feel more confident about going ahead with the building, knowing that buyers will be able to qualify for a high (loan-to-value ratio) if they need to,” said Westpac Bank acting chief economist Michael Gordon.

The latest round of macro-prudential tools are the third for New Zealand. The central bank put in place temporary restrictions on high loan-to-value ratio bank lending in October 2013 and tightened those restrictions for investors in the largest city of Auckland in November last year. – Reuters