“Although the Reserve Bank will continue to investigate the case for using a DTI restriction and/or a capital overlay in the future, the increasing over-valuation in the housing market and rapid increases in investor debt suggests it is desirable to change the LVR policy in the interim”, the paper said.
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According to the AAP, the RBNZ has proposed changes under which no more than 5% of total bank lending would be allowed to residential property investors with a deposit of less than 40%.
Coming on top of the slide in dairy lending as that sector struggles to survive weak prices, low demand and a global surplus, the big four banks face much tougher times ahead in their biggest worldwide market.
Labour’s finance spokesman Grant Robertson said the message from the Reserve Bank for greater Government action was clear.
“Every recent measure the Reserve Bank has taken has had minimal influence and this latest measure will be no different”.
“It certainly is going to increase the amount of business going through non-banks, that nearly goes without saying”, Colins said.
Property Institute chief executive Ashley Church says there were indications two weeks ago that the Reserve Bank would increase the loan-to-value ratio toward the end of the year, but have now been moved sooner to September.
The Reserve Bank’s new restrictions on highly-leveraged home loans are likely to be a boon to non-bank lenders, which make up a fraction of all mortgages but aren’t covered by lending curbs on banks. “The proposed restrictions recognise the higher risks associated with such lending”, Governor Graeme Wheeler said.
Mr Wheeler said so far the LVR restrictions had improved the resilience of bank balance sheets by reducing banks’ exposure to riskier mortgages.
The Reserve Bank considers a sharp correction in house prices to be a key risk to the financial system, and one that is increasing the longer the current boom in house prices persists.
“A severe fall in house prices could have major implications for the functioning of the banking system and cause long-lasting damage to households and the broader economy, ” he said.
Restrictions on low deposit home loans have slowed the housing market, but the regions are not happy. This policy initiative is meant to further improve the resilience of bank balance sheets, and it will assist in restraining credit and housing demand. “We expect banks to observe the spirit of the new restrictions in the lead-up to the new policy taking effect”.
Consultation concludes on 10 August.
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“We should be changing the planning rules so that we can build more houses and give fiscal incentives to councils so that when they consent more houses, they get more money”.
