SMH undermines RBNZ experiment

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The SMH is doing its bit today to undermine New Zealand’s admirable macroprudential experiment with some propaganda from Rate City:

RateCity today says the proportion of loans in its database that grant borrowers credit with a deposit of just 5 per cent has increased to 73 per cent, up from 68 per cent a year ago.
It comes after regulators recently said there had been an increase in loans with a loan to valuation ratio (LVR) above 90 per cent.
“Lenders are loosening the belt on home loan criteria meaning many more potential borrowers are eligible for loans that may not have been approved in the past,” the chief executive of RateCity, Alex Parsons, said.
“All major banks now offer home loans with up to 95 percent LVR, while Westpac also offers up to 97 percent LVR on some of its home loans.”

The RBNZ chief noted that banks had significantly increased their high LVR lending in advance of the recent rules, not afterwards. The use of the year on year figure by Rate City is a dead giveaway given the rules are just coming into effect. Month on month will be very different.

Moreover, aside from this morning’s story that CBA is slamming on the brakes in high LVR lending, there is also recent evidence that the banks have jacked rates on high LVR loans as well. From Interest.com.au:

Westpac has announced new higher mortgage rates for borrowers who have less than 20% equity in their home.

At the same time, they have repositioned their standard rates as being for those who have at least 20% equity or more.

The move by Westpac NZ follows increases in low deposit mortgage premiums by ANZ and the Bank of New Zealand.

The white-anting has begun.

David Llewellyn-Smith
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Comments

  1. HnH, if housing prices remain stagnant or decrease, doesn’t the economy slow down as a result? I’m not saying we should prop up housing prices, just that when they go down it adversely affects the economy and jobs.

    I see macroprudential policy as trying to pick winners and losers through monetary policy. No different to subsidies to the car industry (winners) and taxes on everyone else (losers).

    • Most of the jobs are created in building new housing. All the current system is doing in filling in the purses of the FIRE sector and to a certain extent state government.

      Build more => economic growth + jobs. This does not have to mean house prices go up to build more.

    • If you’re happy remove negative gearing, bank guarantees, all forms of government RMBS support, citizenship exports, articificial supply restrictions etc then yes I agree that MP is not necessary.

      But while these distorting supports exist and cause misallocation of capital into housing then I;m more than happy to apply some counter-balancing regulation.

      • What about unintended consequences? I can guarantee trying to solve other government blunders with more regulations will cause greater market distortions.

        e.g. 1) MP policies that restrict high LVR lending will mean less loans to first home buyers (who have smaller deposits) and more loans to investors and retirees/SMSFs.

        2) Less loans will mean more people renting which increases the rental return on property, further supporting property prices from investors who are unaffected by MP

        HnH I would like to see more discussion about the risks of implementing MP because that has been lacking. Apologies if you have already covered this.

      • Meh. First home buyers are out already on affrodability. They’ll be better served by stalled prices.

        Investors are taking up a huge portion of LVR lending now.

        There be no increase in renting.

        These “risks” pale in comparison to the hollowing out of the industrial base that will continue if it’s not done.

  2. Fairfax undermining attempts to check a housing bubble? Does Fairfax own APM, which derives its income from the real estate industry in one way or another? Conflict of interest much?

  3. “The white-anting has begun”

    That was a pretty quick strike back from the Empire.

    The battle over the Force is fought, not on the streets of Athens or Dublin or Naples, but right here in the cyberspace.

    Amazing how history has evolved in terms of the battleground/arena from the days of Napoleon to Stalin to now…..

  4. One reason I think reason we clearly need macroprudential reform to limit LVRs in this country is that it would finally make housing affordability a political issue in Australia.

    It seems to me that the majority of those who are disenfranchised by Australia’s abysmal housing policy have accepted the line fed to them that if they can JUST get on to the property ladder, everything will be OK and prosperity is guaranteed.

    When this is no longer even possible, people will start making waves. Clearly that is what has been happening in New Zealand since the RBNZ took action and housing affordability is finally receiving the attention it deserves and politicians are being forced to act.

    It is time for the RBA to step up.

    • Spot on. As I have argued time and time again, Australia’s governments have abrogated their responsibilities on housing policy to the RBA – effectively attempting to solve an affordability problem cause by a myriad of policy distortions (e.g. supply-side and negative gearing) through ever lower mortgage rates.

      Take away the ability to juice the market through easy credit, and governments will be forced to act via housing policy reform. This is precisely what is starting to happen in NZ.

    • “One reason I think reason we clearly need macroprudential reform to limit LVRs in this country is that it would finally make housing affordability a political issue in Australia.”

      Really good point!