RBNZ juices new home construction

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ScreenHunter_02 Jun. 14 21.43

By Leith van Onselen

The Reserve Bank of New Zealand (RBNZ) has today changed its limits on high loan-to-value ratio (LVR) mortgage lending to exempt new home construction, in a move that is clearly aimed at stimulating housing supply:

New residential construction loans will now be exempt from the loan-to-value (LVR) restrictions introduced from 1 October, Reserve Bank Deputy Governor Grant Spencer said today.

“The Reserve Bank has recently consulted with the building industry and banks on the impact of LVR restrictions on residential construction activity,” Mr Spencer said. “While high LVR construction lending is only around 1 percent of total residential lending, it finances around 12 percent of residential building activity.

“This exemption means that low deposit lending will fall outside the 10 percent speed limit if it is financing the construction of a new house or apartment.”

“However, any new low deposit construction loans will still need to meet the internal risk requirements of the lending banks.”

Mr Spencer said that the new exemption will apply to all qualifying construction loans from 1 October 2013.

“This exemption will help to support the supply of new housing and, in doing so, reduce some of the pressure arising from excess demand in the New Zealand housing market.

Seems like a sensible move.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.