Reserve Bank considers easing mortgage restrictions

WELLINGTON: The Reserve Bank of New Zealand is evaluating whether to further ease mortgage curbs and will update the market in its upcoming financial stability report (FSR), deputy governor Geoff Bascand said.

‘‘Our risk tolerance for the recent housing and credit boom is implied by our calibration of the loantovalue restrictions. We keep these settings under review and will publish our next assessment of them in the upcoming FSR,’’ he said.

The FSR is due to be published on November 28.

‘‘The question we are assessing is whether the same restrictions are needed in the current environment where debt levels remain high but are not deteriorating, now that bank lending standards have tightened significantly and rapid growth in credit and house prices have stabilised. If these conditions continue, we expect to gradually ease the policy in coming years.’’

The central bank introduced the LVR (loan to value ratio) restrictions in 2013, a time when high LVR loans exceeded 20% of all outstanding loans, a situation that ‘‘implied excessive risk,’’ it said. It eased those restrictions earlier this year when housing market pressures showed signs of abating.

According to the latest data, high LVR loans now represent about 9% of lending.

Currently, only 15% of new loans to owneroccupiers can have deposits of less than 20%. Just 5% of loans to property investors can have deposits of less than 35%.

In the speech, Mr Bascand reiterated that New Zealand has two main vulnerabilities: high levels of indebtedness in the household and dairy sectors and a reliance on foreign sources of funding.

Household indebtedness has increased dramatically in New Zealand in the past 30 years. In 1988, the average household owed about $16,000 and had an income of about $35,000 — a debttoincome ratio of 46%.

By the end of 2017, that ratio had risen to 168%, following a 10fold increase in average household debt to almost $160,000, while average incomes had only slightly less than tripled to $95,000.

The central bank is at present reviewing its role and powers as they relate to financial stability; in particular, whether it remains fit for purpose or needs modernising. — BusinessDesk