NZ central bank may restrict mortgage lending

Rising home prices in New Zealand may lead to mortgage lending restrictions, said the RBNZ.

The Reserve Bank of New Zealand (RBNZ) said new mortgage lending restrictions may be introduced should house prices continue to increase, reported Reuters.

The central bank’s fears of a debt-fuelled property bubble indicate that it may stop lowering interest rates, which fell to a record low of 1.75 percent last month. In fact, it has raised loan-to-value ratios (LVRs) on investment properties to 40 percent, and is now seeking authority to introduce lending restrictions based on the debt-to-income (DTI) ratios of borrowers.

“On housing risks specifically, the RBNZ certainly isn’t claiming victory despite signs that the Auckland market is cooling, and LVR restrictions have improved bank resilience to price falls,” said ANZ Senior Economist Philip Borkin. “The risks discussed reinforce that the cash rate is likely on hold for the foreseeable future.”

Following the bank’s release of its semi-annual report on the state of the banking sector, RBNZ Governor Graeme Wheeler revealed that he will discuss with Finance Minister Bill English in “a couple of weeks” on whether lending restrictions based on DTI ratios may be included to its policy toolkit.

Although the bank did not suggest using said measures at present, Wheeler said DTIs may be necessary should home market imbalances continue to worsen. The RBNZ noted that home prices to income ratios in Auckland, the biggest city in New Zealand, are among the world’s highest.

Cheryl Marie Tay, Senior Journalist at PropertyGuru, edited this story. To contact her about this or other stories, email cheryl@propertyguru.com.sg