The credit quality of residential mortgages being used as security for banks' covered bonds will improve next year due to the Reserve Bank enforcing restrictions on banks' high loan-to-vale ratio (LVR) lending, Moody's says.
"The credit quality of mortgages in the New Zealand cover pools will improve in 2014 as a result of the Reserve Bank of New Zealand’s new macro-prudential policy to restrict banks from providing mortgages with LVRs above 80%. Under the new guideline, such loans can constitute no more than 10% of all new lending. We therefore expect the credit quality of cover pools to improve because the banks will have a smaller selection of high LVR loans to include in their pools," Moody's says.
Since October 1 the Reserve Bank has restricted banks' new residential mortgage lending at LVRs of over 80% to no more than 10% of the dollar value of their new housing lending flows.
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