The Reserve Bank of New Zealand (RBNZ) has confirmed that it is in talks with New Zealand’s finance minister, Bill English, to further tighten macroprudential controls and take the heat out of home lending. From Bernard Hickey at Interest.co.nz:
Reserve Bank Governor Graeme Wheeler has signalled the bank is considering toughening its loan to value ratio (LVR) limits on lending to rental property investors “towards the end of the year, or before that.”
Wheeler told a news conference for the bank’s June quarter Monetary Policy Statement that discussions had already begun on both a new set of LVR controls and the longer-term potential for limiting debt to income (DTIs) multiples for mortgages…
“We’ve had discussions with the Finance Minister on Macro-Prudential tools. We’ve talked to the Finance Minister and said that we’re doing some work on loan to value ratios, which the market is familiar with, and that we also wanted to do some work on debt to income ratios. We also said that that latter work is likely to take longer,” Wheeler said.
“But we’ll be probably talking with the Finance Minister in the next few weeks in terms of the consultative process that we go through,” he said…
Meanwhile, David Hargreaves explains at Interest.co.nz that the RBNZ could raise LVR requirements fairly quickly, since these are already in the macroprudential tool-kit agreed with the Government, but that introducing debt-to-income ratios would take longer, because these are not already in the toolkit and would need to be agreed with the government.
As noted yesterday by Moody’s, the RBNZ’s macroprudential measures have had some success in slowing house price growth:
However, Auckland housing is now beginning to gallop away once more, necessitating further tightening. This is exactly what the RBNZ should do, since the inflating housing market is the key factor stopping the RBNZ from lowering interest rates and the Kiwi dollar, thus providing assistance to the tradable economy (New Zealand is now experiencing an early stage income shock from falling dairy prices).
The transparent deliberations in New Zealand are yet again a stark contrast to Australia, whereby APRA’s secrecy provisions has kept everyone in the dark as to its ambitions. Australians have no idea whether APRA is considering lowering its way-too-generous 10% ‘speed limit’ on investor lending because it won’t speak publicly on the issue. The RBA is also remaining coy.
This is why it is time to lift the veil of secrecy around APRA in order to apply some transparency to the regulator’s actions and the market.
Just follow the RBNZ’s lead, for goodness sake.
