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6 Comments
All of the “analysis” I’ve seen from people like corelogic assumes all buyers had a 20% deposit. Yet we know LVR rules never restricted all loans to require the deposit set by LVR rules, but instead limited low deposit loans to be a small(ish) percentage of their total lending book.
RBNZ figures show that 1/3 of all FHB in March 2021 had a deposit a of less than 20%.
You’d think corelogic would know this when performing their “analysis”
Would be an interesting article for interest.co.no to explore.
Perhaps explore the 10% lending that happened in 6 months around peak to FHBs - would assume most, if not nearly all, are close to or in negative equity now. Those in Auckland and Wellington could be heavily in negative equity.
BNZ CEO is quoted as saying “what’s the matter, interest rates gone up? Fuck you, pay me”
To address financial stability risks, central banks need the effective tools.
Monetary policy is not the tool to address macro-prudential risks (monetary policy tools are tools to address the RBNZ's inflation and employment remit)
The extreme house price risks were preventable back in 2016 when the then Finance Minister did not give the RBNZ the tools they requested to address macroprudential risks.
RBNZ's DTI plans hit by Government changes | interest.co.nz
If a debt to income ratio of 5 was imposed back in 2017, then a significant amount of lending would not have been made (and house prices would have been less likely to have reached their record levels).
Based on RBNZ data, the lending commitments made by banks in 2021, that were on a debt to income of 5 or above were NZ$58.8bn (about 59% of total lending commitments made in 2021). For the period of 2019-2022, total loan commitments on a debt to income of 5 or above totalled NZ$99.8bn (about 32% of the total loan commitments for that period)
https://www.rbnz.govt.nz/statistics/series/lending-and-monetary/residen…
The higher the debt to income ratio for a borrower, then the higher the probability of default.
Now how many of these borrowers will experience significant cashflow stress, or default?
For some mortgages, the banks will allow some mortgage modification (such as extension of loan maturity date, or allow the borrower to go on interest only) to alleviate the borrower's cashflow stress.
For other mortgages, the banks may require the borrower to sell the property. This will a key factor in determining the magnitude of house price falls.
Remember, that as at March 2023, there were 19,300 borrowers in mortgage arrears.
https://www.centrix.co.nz/wp-content/uploads/2023/05/Centrix-Credit-Ind…
Also seen today:
Interest rate pain: Banks urge some property owners to sell up to shed the debt
“Banks don’t like going to mortgagee sale – mortgagee sale is the last resort.”
Remember, that unemployment is currently low. What will happen when unemployment rises? How many more borrowers will be under cashflow stress?
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