Increased bank capital could cool housing
AUCKLAND: Banks should be forced to hold more capital against investor mortgages, pushing up the interest rate to help cool the property market, an economist believes.
Kiwibank chief economist Jarrod Kerr said the rampant run in the housing market had ‘‘surely taken a negative cash rate off the table’’.
Last year, market expectations were for the official cash rate (OCR) to go negative this year after the Reserve Bank continued to talk up plans to cut the OCR further.
However, a Government call to the Reserve Bank to take housing into account as part of its decision making as well as an economy recovering faster than expected, has made that less likely.
Mr Kerr said market pricing of further rate cuts had effectively been removed and wholesale rates had been shunted higher.
‘‘Thoughts of further RBNZ easing have turned to thoughts of RBNZ tightening of macroprudential policy.’’
The nextbest step the Reserve Bank could take would be a reassessment and bank repricing of the risk associated with home loans, Mr Kerr said.
‘‘The risk weighting on home loans could be adjusted to better reflect the higher risk associated with interestonly and investor loans.
‘‘Applying a higher riskweighting on investor mortgages, forces banks to hold more capital against those loans and ultimately, price them differently.’’
He said someone walking into a bank with a 30% deposit to upgrade their home should receive a lower interest rate than a leveraged investor buying their fifth investment property on interest only.
Banks have already made it harder for investors to get mortgages.
At the end of last year, ASB and BNZ brought back a 30% deposit requirement for investors, and ANZ increased its requirement to 40% before a plan by the Reserve Bank to bring back a 30% loan to value ratio (LVR) from March.
Westpac said it had not changed its requirements for investors, despite the LVR being dropped last April, to make loan deferrals possible as the global pandemic began to bite.
Consultation on bringing back the LVR closed on Friday, and the Reserve Bank is expected to make a final decision next month, although most consider it a foregone conclusion that the LVRs will be back.
CoreLogic senior economist Kelvin Davidson believed the Reserve Bank could even consider increasing the LVR to 40% for investors this year, something ANZ has already called for.
He said it was almost certain that there would be a 30% deposit requirement from March 1.
‘‘It’s hard to see anything else. Our attention is probably more what happens after that, because if you look back to the end of 2016, when a 40% deposit requirement was bought in, back then we had investors with a high share in the market and rapidly rising house prices, politics were in place — something must be done about the housing market. Then we saw a 40% requirement come in.’’
Mr Davidson said a lot of those conditions were back in play again.
‘‘Investors’ share in the market is now about 27%, which is as high as it was in 2016. It just feels like everything looks the same. We wouldn’t be surprised if we ended up at 40% sooner rather than later.’’
Mr Kerr said tweaks to mortgage rates would not fix the housing problem.
‘‘Attacking demand is not the answer. Fuelling supply is the answer. And fuelling supply is more a fiscal responsibility.
‘‘The Government must step up, in support of the councils, to unlock land, build the infrastructure, and provide longterm plans to tackle our chronic housing shortage.
‘‘A multipronged approach that provides certainty is needed to channel resources into housing development.’’ — The New Zealand Herald
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❛ Applying a higher risk
weighting on investor mortgages forces banks to hold more capital against those loans and ultimately,
price them differently