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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.”
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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.
27 Comments
White smoke. Buying a
White smoke. Buying a mortgage has been the easy part.
Yes indeed ostrich - the
Yes indeed ostrich - the following comment should ring alarm bells;
The bank noted that New Zealand bank lending surpassed deposit growth in December on an annualized basis for the first time since early 2009.
An extension of the leverage practice undertaken by NZ banks, which Moody's recently noted in not so subtle terms:
New Zealand banking system has highest loan-to-deposit ratio of 14 Asia-Pacific countries, Moody's says
poses ongoing bank liqiudity issues.
Morning Stephen ,and the
Morning Stephen ,and the lending is substantially directed to ... Four banks to be looking for government guarantees in the name of financial stability.
Well it was explicitly stated
Well it was explicitly stated by a visiting executive from CBA commenting about the proposed fees law suit. Read article
He admitted banks hadn't done a good job in explaining to the public what the cost of safety was. In other words, the big profits they're criticised for making help provide the buffer they need between the deposits they take and the money they lend out to ensure they don't fail and need government bail-outs.
Such unreserved, offhand confidence reflects knowledge of an official declaration, no?
And one element of high lvr's
And one element of high lvr's is to keep the music playing - credit growth, first time buyers in, first families up size etc......
They will man the pumps (ride that market sentiment) to delay the below for as long as possible...
First home buyers appear to be deserting the property market, casting doubt on the sustainability of a mooted housing market recovery.
It's generally not great for sustainability when young people are not getting in.
The number of first time buyers entering the market fell to its lowest level in two years in January, according to the latest figures from the Australian Bureau of Statistics.
Read more: http://www.smh.com.au/business/property/first-home-buyers-desert-market-20130313-2g023.html#ixzz2NSWCanbZ
Remember, we are talking about the same banks....
Banks create money out of
Banks create money out of thin air, and lend it into existance. They have a RRR (Reserves Requirement Ratio) at 10% and the property investors are simply leveraging inflation to gain equity while the savers are being fleeced, again and again, year after year.
High leverage is not only profitable (for banks and borrowers) but a necessary part of life. Since the Central Bank have monopoly over the issue of money, and money can only lend into existances, increasing leverage is necessary to keep the house of cards straight.
The total debt is smaller than the total money supply as a result of the fiat system. If the debts are paid off, the system will collapse. The only way is to expoentially increase in borrowing, along with money supply, and that's why we get sustained inflation.
When will ppl wake up and realize the biggest scam in history?
Frostwind - I think you refer
Frostwind - I think you refer to Fractional Reserve Banking Regulations that pertains to the US banking system - even this bank lending restriction has been emasculated by the US Federal Reserve edict to allow the practice of account sweeping into unrestricted money market type savings A/Cs.
Frostwind, you're not
Frostwind, you're not understanding what you've just posted.
IF the banks can create money out of thin air...then savers are being fleeced. (ie either they can do it out of thin air ... or they have reserve ratios and penalties)
However since banks can't create money out of thin air (they must do it at or under contract) and that ties to their holdings (savers, investors) then savers are selling their loan to the banks... but that links the cost of wholesale rates, RRR, OCR, and savings payout to the advertised interest rate. For savers to get more, banks must get repayments of loans they make that cover their borrowing rate...yes they're leveraged (gasped) but that's not money out of thin air either.
Banks are flush with cash
Banks are flush with cash because our interest rates are too high and need to be aligned to the rest of the world. The single largest cost for New Zealand business is interest cost, therefore interest rates must continue to fall for New Zealand business to be competitive against global competition. Relative high interest rates strip profitability reduces the government tax takes and cuts into a business retained reserves which means no extra money for R&D. Relative high interest rates pushes up the NZD which reduces exporters income.
All well and good, but this
All well and good, but this level of debt (which excludes government and LA liabilities) for so few real non - government funded earners of wealth lenders demand a higher credit default risk cover - I.E. higher interest rates
Precisely Kimy! Interest cost
Precisely Kimy! Interest cost is the largest for many business the world over.
Banksters are silent partners, without risk, to every indebted business in the world. The business owner carries all the risk, does all the work, and earns less money that it's riskless partner.
Got to love it!
HGW
Its not just indebted
Its not just indebted businesses, but everyone who trades with them. An indebted business has less buying power. The customer of an indebted business must pay a higher shelf price to cover the interest/debt. This is normal. Consider it a "bankers tax". Just be happy they only charge 3-9% bankers tax, unlike the 30-45% incompetence tax.
More money being loaned is a
More money being loaned is a position that people will take. They are taking a bet on Russell Norman being the next Finance Minister and printing money:). Inflate the debt away...............
I was mortgage free for 18 months but I will now take on $200-250K to do a house extension in Greenhithe, Auckland's North Shore. $50K will be savings already invested into the rebuild. Part of that is to fix a few slightly leaky parts of the house, nothing major, so I thought I may as well do extensions at the same time, get better insulation and get the garage attached to the house. After this is done I will still have 70% plus equity in the house so I am comfortable with this loan at sub 6% interest rates. This will take our home from $650-700K to around $850-900K. Up until now we have had one of the worst houses in a very good street. We looked around but there was no where that we liked outside the area.
I admit, I would be nervous getting a 90% loan though on a $6-700K house. The bank said they would lend us $750K if we wanted it. I said no thanks to that amount.
so I thought I may as well do
so I thought I may as well do extensions at the same time, get better insulation and get the garage attached to the house
Given the bank is being generous with other people's money why don't you extend the mortgage a little more to fill the garage with an expensive European car or two? You will be doing us a favour by helping to blow out the C/A deficit which will lower the exchange rate, thereby helping parched exporters.
Ouch!
Ouch!
Just to piss you off Stephen,
Just to piss you off Stephen, I also brought a near new Toyota Atara in Dec for $37K with cash as I lost my company car and get an allowance instead of around $2K PM. Drives like a dream.
Enjoy your shoebox.
Would love to get a new car
Would love to get a new car but I am going to be more disciplined and keep driving my 7 year old Lexus RX 350. Keep pressure on paying down debt.
Good on ya Kimy, I have the
Good on ya Kimy, I have the poor mans Lexus, a Toyota.
Perhaps you should update
Perhaps you should update your user name from the 'The best status is a mortgage free home' to 'Loser who doesn't want to live within his means'.
Seems apt.
Sorry Moa Man, I am living
Sorry Moa Man, I am living well within my means. $200K debt with around $1M assets is a pretty safe gearing in my view. If I lost my job I walk out with around $80K plus I have a good car I could sell. My wife also earns good money as well.
Typical jealously of the Labour/Green sycophants who roam this site.
Your comments belong with the Moa - extinct.
Hahahah, I have been thinking
Hahahah, I have been thinking about a boat instead. 2nd hand boats apparently good value now that summer is coming to an end.
Come on, it's not going to
Come on, it's not going to rain THAT hard!
Nice of the company to buy
Nice of the company to buy you a car.
Although with $37k cash, 6 months on the money market you would have enough for a "free" one
I brought the car myself but
I brought the car myself but get a car allowance. It's my fault I have a job that values me and gives me nice perks. BTW, I need the car to visit clients as I am high tech sales industry. So it is part of an employment package. Now, isn't that nice for me:).
BTW Misty one, not jealous at all are you?
Mr Wheeler is
Mr Wheeler is concerned
..... and concerned
and ummmm concerned.
But when is he going to do something.
Indeed, Wheeler needs to get
Indeed, Wheeler needs to get interest rates down. This rainfall this weekend looks a bit pitiful. Farmers are in dire need of relief. Interest rates must fall dramatically otherwise say bye bye to more farms to Chinese owners. Keep New Zealand farms in the hands of New Zealanders. Drop interest rates.
The high LVR will not be a
The high LVR will not be a problem in 12 months time as house prices will have increased another 15% creating far more equity. Then the bank will lend you more money to buy a rental property.