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RBNZ's Wheeler concerned about high LVR lending, which now represents up to 30% of all new lending
The Reserve Bank of New Zealand has warned again it is watching signs of accelerating bank lending growth and house price inflation.
The bank noted in its March quarter Monetary Policy Statement (MPS) bank funding costs had declined in recent months, which had reduced retail mortgage rates despite the flat outlook for short term wholesale interest rates.
Wheeler told a news conference after the MPS he was concerned about the rise in high loan to value ratio (LVR) lending. He said about 20% of all lending growth was now in the 80-90% LVR bracket, while a further 10% was in the 90% plus bracket. A Reserve Bank official later said this 80% plus lending was up from around 15% of lending growth early last year.
The bank also average mortgage rates had fallen 45 basis points over the past year as funding costs for banks had fallen because of calmer international markets.
Wheeler later told the news conference he was not concerned that the Reserve Bank may be losing control or traction with its monetary policy in the same way its effectiveness was blunted between 2002 and 2008 by high levels of fixed rate mortgage lending and lending rates that moved independently of monetary policy.
The bank noted that New Zealand bank lending surpassed deposit growth in December on an annualized basis for the first time since early 2009.
“There is indicative evidence that higher loan to value ratio lending has made up a greater proportion of new lending,” the bank said.
“If credit growth continues to pick up, banks may issue into offshore markets with greater frequency,” it said. “While this would increase banks’ reliance on global funding markets, funding costs are the lowest they have been since early 2011.”
The Reserve Bank made no comment in its Monetary Policy Statement about the use of macro-prudential tools to cool the housing market, including a limit on loan to value ratios and higher capital requirements for mortgage lending.
Wheeler later told a news conference the bank continued to consult with retail banks about the tools.