RBNZ smashes high LVR mortgage lending

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By Leith van Onselen

The Reserve Bank of New Zealand’s (RBNZ) macroprudential caps on high loan-to-value ratio (LVR) mortgage lending, introduced in October last year, continue to work their magic, with the share of 80%-plus LVR mortgages issued by New Zealand’s banks registering another fall (see next table).

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According to Interest.co.nz:

As of October 1, according to new Reserve Bank rules, all banks were limited to committing no more than 10% of their new lending to mortgages exceeding 80% of the value of the property being bought…

In January there was a total commitment of new mortgage lending by the banks of $3.090 billion.

Of this, $2.942 billion was on properties with an LVR of 80% or below, while just $147 million was committed for so-called high-LVR loans (above 80%).

Some $31 million worth of mortgages for loans above 80% but exempt from the new rules were also advanced.

The latest figures compared with a high-LVR portion of lending of 12.7% (before exemptions) and 11.7% (after exemptions) for October.

This is obviously more evidence that the RBNZ’s macro-prudential controls on mortgage lending are working to cool the New Zealand housing market, and comes on top of recent house price falls and the ongoing contraction in housing finance approvals (see next chart).

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Again, Well done RBNZ. Now, if only the RBA/APRA would take note…

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11 Responses to “ “RBNZ smashes high LVR mortgage lending”

  1. Capitalist says:

    But the RBA has explicitly stated they see housing construction as the next driver of growth and don’t see a housing bubble.

    How can you trust the RBA with macroprudential policies when they hold the above views?

  2. mikeinnz says:

    Also notice that overall lending is falling, not just high LVR loans.

  3. jimbo says:

    And just like that demand vanishes, dare I say so will many of the supply issues. Further proof that the biggest problem with housing is the finance sector giving far too many people money on the simple basis that they have a pulse. Good on the Kiwis, it’s a pity we’re still too delusional or corrupt to make similar hard calls.

    • The NZ approach is sound. The RBNZ is limiting credit while the National Government frees-up the supply-side.

      I disagree that credit is the major long-term problem – it isn’t. The supply-side effectively determines who misses out, whereas credit determines at what price they miss-out.

      • mikeinnz says:

        Was talking to an estate agent in Christchurch today. She says the market is starting to correct at the higher end as the new supply coming on stream is beginning to take effect.

  4. terrymcf says:

    Sure…but timing is everything. Bear in mind the NZ’s “iron ore” is milk powder which is on a massive roll.So the bank can afford to cool housing sharply. But look at this mornings capex numbers. Can the RBA really afford to cool housing when mining capex is falling sharply , other capex is doing nothing and Capn Abbott has turned off his spigot ? Um …er…where does demand come from?. Not easy when you leave it too late as RBA has done by the look of it.

    • Andy! says:

      This is the reason RBA should be actively cooling property prices/debt! Encouraging people to take on more debt and pay new record prices is crazy with the CAPEX problems ahead, and contrary to their stability charter.

    • Dogbert says:

      If only Australian’s iron ore was produced by a cooperative of people distributed all over the country that received extra money to put into the economy at the consumer level when the price was high…

  5. Pfh007 says:

    The RBA have a clear understanding as to how both sides of politics interpret the RBA charter and that does not involve the RBA going commando and draining demand from the economy with MP.

    If Abbott would man up and steep into the breach and indicate he will take responsibility for filling the demand hole or explaining the strategy to those who feel the sting that would be a different story.

    The RBA will hold the line and keep juicing the only thing they can – debt and house prices with interest rates.

    Gov Glenn got a huge pay rise for a reason.

    To do an unpleasant job, that will leave its mark on his reputation, without flinching.