Governor willing to consider ‘unintended consequences’
Banks, builders want loan limit exemptions for new home construction, reports
SOME new house building plans are being ditched, as banks say the Reserve Bank’s new speed limits on low deposit home loans are ‘‘biting hard’’. But Reserve Bank governor Graeme Wheeler rejects the notion that the new lending limits will be a major barrier for new homes being built or that lending limits would create a generation of renters.
But he warns the speed limits on low deposit loans, brought in last month to reduce the risks in the banking sector and cool rising house prices, are just the starter.
Borrowers should expect to see mortgage rates start rising next year, and eventually be about 2 per cent higher in a couple of years. That would push mortgage rates up towards 8 per cent, he said yesterday.
Some home buyers were probably not aware how much more they would need to pay as debt servicing costs rose, he says.
Wheeler shies away from saying the housing market is a ‘‘bubble’’ but prices in Auckland were ‘‘certainly inflated’’.
While banks and house building firms have complained about the damage being done by new lending controls, Wheeler has opened the door to at least discuss the possibility of exempting new homes.
At the start of last month, the central bank brought in limits on how much banks could lend to people with a deposit of less than 20 per cent of a home’s value.
The Bank of New Zealand said on Thursday that it was now doing ‘‘hardly any’’ new lending above 80 per cent loan to value ratios (LVRs). ANZ Bank also said the new rules were ‘‘biting hard’’.
New home building company GJ Gardner said it had lost 24 new home builds in the past month, and blamed the new rules.
But Wheeler says it is too early to determine the impact of the rules.
He admits there are reports of fewer people attending open homes, and some banks have brought in different pricing – charging more for people borrowing with a low deposit. Banks are also taking a tougher line on credit standards for borrowers.
So banks were rationing the amount they were lending to those with a small deposit.
It would be three to six months before the central bank saw the impact of the measures. ‘‘We know there are issues – should new housing be exempt – and we are currently talking with the banks [and building industry groups] about that, trying to gather data.’’ compared favourably with buying an existing home.
And house building consents are running about 50 per cent above levels reached at the trough of the building slump in 2011.
Consents issued in September were the third highest for the year, though that was before the new lending rules came into force.
‘‘There is quite a lot of building going on and demand for housing is still strong in many parts of the country,’’ Wheeler says
Annual consents for Auckland are at about 5700, but that needed to be much higher, perhaps 13,000 a year to meet demand.
The Government wants to see 39,000 new homes over three years. There is probably a shortfall of between 20,000 and 30,000 homes needed in Auckland.
Wheeler admits that consent levels remain well below levels seen in the building boom last decade. ‘‘There is a lot more to be done.’’
There was still a significant ‘‘imbalance’’ between the supply of new homes and the demand.
The supply of new homes fell quite dramatically around 2007 and 2008. Many developers and builders left the industry, and banks