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RBNZ to take stock of new housing-related policies before doing more to restrict mortgage lending; Robertson not yet convinced by RBNZ's pitch for debt-to-income tools

RBNZ to take stock of new housing-related policies before doing more to restrict mortgage lending; Robertson not yet convinced by RBNZ's pitch for debt-to-income tools

The Reserve Bank (RBNZ) is worried “risks associated with the housing market are accumulating”, but it isn’t looking to do more to restrict mortgage lending anytime soon.

The RBNZ, in its biannual Financial Stability Report released on Wednesday, was clear it wants to see the effects of recent policy changes before doing more to rein in mortgage lending.

What’s more, it will need Finance Minister Grant Robertson’s permission to implement debt-to-income (DTI) ratio restrictions - its macro-prudential tool of choice beyond loan-to-value ratio (LVR) restrictions.

The difficulty is, the RBNZ isn’t bowing to Robertson’s view that restrictions should only be applied to investors.  

The RBNZ, in its report, recognised: “DTI caps would tend to impact more on investors and higher-income owner occupiers, who borrow at higher DTI ratios on average.”

But it said: “The impacts on access to credit for first-home buyers could be further mitigated with speed limits.”

The RBNZ currently applies speed limits to LVR restrictions. For example, it allows 20% of banks’ mortgage lending to go to borrowers (owner-occupiers) with deposits of less than 20%. 

‘Sense of conflict’ between Govt and RBNZ goals

Asked whether such a speed limit would allay his concerns around DTIs hurting first-home buyers, Robertson said: “I’d need to look very closely at that, because my concern remains that if they were applied in a blanket fashion that would have a disproportionate effect on first-home buyers.”

Robertson recognised the argument it might be difficult for the RBNZ to justify exempting first-home buyers from DTIs on financial stability grounds, when this group of borrowers is taking out increasing large loans compared to their incomes.

But he said: “From our perspective - from the Government’s perspective, that has to be balanced against the other objectives that we have. And that includes making sure that we do see more first-home buyers balanced against investors.

“This is a classic moment where the policy objective… and macro-prudential policy come into some sense of conflict. We’ll resolve that.

“But I am prepared to look at the proposal and see how that would work and what the impacts would be.”

The RBNZ will report back to Robertson on DTI caps and the possibility of restricting interest-only mortgages at the end of May.

DTIs wouldn’t be implemented for several months

The RBNZ said that should Robertson decide to give it a DTI tool, it would take several months to implement.

“A data collection process for DTIs is already in place, but further work would be needed to finalise the design of the tool and update bank systems,” the RBNZ said.

“The estimated lead time is six months.”

Making its case for DTIs, the RBNZ explained they serve a different purpose to LVRs. While LVRs limit the amount a bank stands to lose if a borrower defaults, DTIs ensure borrowers can service their debt.

“Evidence suggests that debt serviceability restrictions are an effective tool for moderating house prices cycles,” the RBNZ said.

“Their effectiveness is likely to be sustained over time to a greater extent than LVR restrictions.”

RBNZ open to requiring investors to have a 50% deposit 

The RBNZ noted LVRs have already “significantly improved the resilience of the financial system”.

Yet it said the marginal benefits of LVRs would dimmish if they were tightened.

This said, the RBNZ noted it could still tighten restrictions. 

“The current LVR settings are tighter for investors [than owner-occupiers], and this differential could be maintained or increased," it said.

RBNZ Deputy Governor Geoff Bascand told interest.co.nz LVRs could be tightened to 50% for investors, for example.

RBNZ less enthused about restricting interest-only mortgages  

The RBNZ wasn’t too keen on restricting the use of interest-only mortgages.

“This is likely to be less effective in moderating housing cycles than LVR and DTI restrictions, given that banks already undertake lending assessments on a principal and interest basis,” it said.

“Complex rules may be necessary to limit opportunities for avoidance (for example, by using revolving credit and mortgage top-ups).

“Initial analysis suggests that targeting interest-only lending with LVR requirements or adjustments to risk-weights may be easier to implement and enforce than a ban, but more work is needed.

“The estimated lead time is at least six months.”

Changing capital requirements less effective

Finally, the RBNZ recognised it could make banks hold more capital for mortgages they issue.

But it said capital requirements for mortgage lending in New Zealand are already relatively high by international standards.

What’s more, the impacts of changing capital requirements would flow through more slowly than the other options, and they’re less likely to dampen house price growth.

The RBNZ also noted banks already have to hold more capital for investor mortgages than owner-occupier mortgages.

But it said it could increase these requirements if necessary.

The estimated “lead time” for doing so would be three months.

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58 Comments

20
up

Fiddling while Rome burns.

14
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More like arguing whether peeing on the fire or spitting on it is going to put it out!

Either may work but Labour will take a dump on it instead as they know best.

Cos Robertson is an experienced economic guru. Inspires confidence- not

It's all ideological. Labour / Robbo can't be seen to be doing anything to disadvantage the FHB's that they are trying to vault on to ladder with grants. We must keep up the pathetic ruse that the market is still affordable for FHB's and that we are definitely not in a bubble (it isn't and we definitely are).

12
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Neither the government or the reserve bank is going to take any meaningful steps to sort out their nation wrecking. That has been abundantly clear for a long time.

Eventually house prices will face a hard correction or the currency will hyperinflate. Maybe both. If you are of house buying age you should take your talents and move overseas and have a better life.

Kick Robertson and Jacinda to the curb at the next election. They can bugger things on their own time instead of ours.

As for the reserve bank. Stop using their worthless tokens as much as possible. Remove your savings from the banks. Put a portion of your savings into crypto each month. Odds are you'll be much better off than playing their game.

And replace them with who?

A national/act coalition?

Jeesus wept, that's not a good thought.

10
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None of the above.

So who, then?

Red army.

The Ghost of Lee Kuan Yew

Minor parties seem to be the only ones with any appetite for actual change. Top or Greens if you're left leaning. Act if you're right.

Definitely the right answer. National bring only 20th century ideas to 21st century problems, while Labour seem to be Natbour and unwilling to address critical social issues.

18
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Robertson if you are not convinced do something about it and soon... watching everything burn from the sidelines is not very nice or kind to the team of 5 million. RBNZ... what on earth do you need 6 months for? Did you ask for 6 months when you flippantly removed LVR restrictions?

6 months is enough time for them to find something wrong in some part of the economy and hold the LVR settings!

6 months means they don't want to do it in the first place and by then interest rates will be on the rise anyway.

11
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He doesn't have time he has to implement the implementation unit, who will in turn implement the changes he cant implement.

6 months because they are busy working on Wellbeing sh*t

Apparently the wage rise freeze is for working folk only, not asset owners. We still have to "watch and wait" through more asset pumping.

Looking at recent auction results (i.e. the last week or so) it appears the market has taken the recent government changes in it's stride and continues to surge ahead, with successful sales well over reserve. I doubt these absolute clowns at the RBNZ would have any concerns about financial stability if prices increased another 30% this year and next.

That's massively false. the RBNZ warned Robertson in Nov 2019 and Feb 2020 that its response to an economic downturn would include rate cuts and possibly UCM. It detailed the risks of this and included house prices and wealth inequality, stating that the government had the tools to manage those externalities and the use of those powers would be warranted. Robertson in retort said he was skeptical of the link between interest rates and house prices...

Watching this interview is a little frustrating. Bascand wants to come across as being measured, process oriented, and agnostic as to whether or not the NZ economy is in dangerous territory because of the property ponzi. However, from all the questions asked by Jenee, you come away feeling none the wiser. I can sense the interviewer also getting that same sense of frustration as the responses are all ephemeral. There is nothing really tangible to take away from this. No doubt Bascand is clever and more open when not in front of the media, but he does not give the impression that the central bank is really decisive, in control, and confident.

10
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..and to be fair, Jenee will be treading a fine line. Being too clever and you don't get invited back.

Just wasted 14 mins of my life watching this performance.
Wished I read your comment, J.C., first and wouldn't have bothered

proportion of people under 45 in NZ who are FHB or already owners, in Auckland, has been falling steadily for 20 years. Gov and RBNZ doing nothing to arrest this. Meanwhile, the alternative (renting) keeps getting more expensive. Plain what is needed. Action not contemplated. "we don't want to change anything or upset anyone " government

It's not how I think good leadership and stewardship should be. To me, it's all Kafkaesque with the people calling the shots living in an alternate universe who don't really have anything they feel they can share with their constituents outside their closest circles. It all seems to be 'whatever will be will be' and that's all they can really share.

The RBNZ is not tasked with pursuing homeownership rates. It is a long line of successive Governments that have failed catastrophically; I don't understand why you all think the RBNZ is some holistic authority, the RBNZ remit is clear as day, go and read it and its actions will no longer be a mystery to you.

I don't understand why you all think the RBNZ is some holistic authority the RBNZ remit is clear as day, go and read it and its actions will no longer be a mystery to you

Why? Because they are the executive authority of the ruling elite for whom the public does not democratically elect. As for their 'remit', how they go about their business ultimately has unintended (or intended) consequences outside the public's control. The property ponzi and monetary debasement exists because of their actions.

No sir, the remit is at the Government's discretion, it is subject to the people's oversight in that sense. But it is not, and probably should not, be made to account for a massive holistic set of outcomes as inflation, regulation and employment are already extremely complex.

No sir, the remit is at the Government's discretion

Read what I wrote again....carefully. The central bank executes under legislation. It is essential in the current monetary paradigm and is responsible for monetary expansion through its actions such as QE. The MMTers will argue against this, but they're missing the point.

Yeah, no, the RBNZ explicitly warned the government of the problems it expected to cause and told the government to use its powers to mitigate those externalities: "the RBNZ warned Robertson in Nov 2019 and Feb 2020 that its response to an economic downturn would include rate cuts and possibly UCM. It detailed the risks of this and included house prices and wealth inequality, stating that the government had the tools to manage those externalities and the use of those powers would be warranted. Robertson in retort said he was skeptical of the link between interest rates and house prices."

Financial stability is part of the remit. How are 20%+ house price rises per anum "stable"?

Robertson stance on DTI's - yes for investors, no for FHBrs - is entirely political. He is aware of Treasury's recent paper identifying that while there is plenty of noise from FHBrs locked out of the housing market by rampant speculation, most would not meet lenders existing LVR/DTI qualifying thresholds. In other words they can't afford to service the required debt at existing prices.

> at existing prices

^ all the problems stem from this.

The banks have truly abrogated their lending policies to RBNZ/Govt, knowing that taxpayers will come to the rescue when it hits the fan.

12
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Robertson & Orr: "Task successfully failed." High fives all round

Failure = success in this Clown World

There's so much ivory tower, purist stuff from Bascand in the interview e.g. in defence of why it took so long to reimpose the LVR restrictions "removing restrictions doesn't harm people, putting on restrictions does" and then Jenee's adroit response is, "it depends who you ask". But I still think the banks should just be required to hold (considerably) more capital against residential mortgage lending as a better way rather than these arbitrary LVR/DTI rules imposed by bureaucrats - let the banks own their lending risks. Also stop money printing and let interest rates rise to their market determined level. So much of this is about interest rates being too low.

Yes. It's an attitude of 'we're in the hot seat and in the inner circle. Run along now.'

Let their be transperancy. Have reached a situation where no more can Robertson and Orr be able to pass the buck on each other.

Let the view of Mr Robertson and Mr Orr be out in public domain and let people judge as to who is screwing - it seems both by their rigid approach.

Think more rigid is Mr Orr as just like LVR, can have seperate DTI benchmark for investors and for FHB. If FM wants only on investor, it is possible as when applying for a loan, one has to declare if it is for investment or owner occupied, no rocket science, so why is Mr Orr trying to be hard.

Why does Robertson not go after Interest Only Loan, if want to target speculators. RBNZ not to keen can understand as Mr Orr is comfortable with the ponzi, which covers up for NZ economy.

RBNZ reasons for not stopping interest only loan as mentioned above in article are rubbish and holds no ground. IO loan could easily be stopped for investors looking to buy house, why is Mr Orr trying to complicate it ( just like national party was, who had no intent so was arguing that as per treaty signed will not be able to ban foreign buyers).

Interest Only Loan should not be stopped completely but should be used in emergency ( like last year or redundancy or sick...) but definitely not when processing a new loan application from investors.

Mr Orr stands exposed as his argument in favour of not acting against IO does not hold any merit and as he is trying to defend and convince a lie is stressed and may be reason for sicky.

Yes there is a lot of resistance to things because of operational or supposed legal hurdles or practicalities but I suspect that they are overstating these or listening to the vested interests too much.

Reason given by Mr Orr for being reluctant to ban speculators availing interest only loan is full of shit and that too stinky.

He should understand that now he stands exposed and before retaliation should resign and enjoy capital gains made on his property investment.

Mr Robertson and Mr Orr can do wrestling match but at home as we are not interested in watching theitr antiques. FULL STOP.

Oh for a politician that can solve a problem. Tax equity release as income. That is all anyone needs to do. You can get rid of bright line tests. When an investor releases equity to buy another property, the fact that they are spending means it is income. If they sell a property to buy another, a property comes into the supply side. Encourage this by removing the bright line test. So simple, just get it done please you work for us, run along and do your job.

"RBNZ to take stock of new housing-related policies before doing more to restrict mortgage lending"

Six to seven weeks still waiting to evaluate. This people will ignore all data / news comming out on a daily basis till they hear a news or data that has even an iota of excuse that can be used by this manipulators to get away by not taking any action to support Speculators.

Thick skin shameless........

In isolation, I agree with Robertson that DTIs are not the way to go. The UK has them, and all it seems to have done is further lock out FHBs as prices continue to climb ahead of wages from investor demand. Even if you can save a 20% deposit you're likely to find you're still unable to get a mortgage due to the income requirements. This is despite many people paying rents that would cover the equivalent mortgage.

The NZ Dollar developers at the RBNZ aren't running their coins' Monetary Policy very well. The NZD is obviously a centralized fiat coin. They're definitely pumping house prices, when they dump someone will be 'left-holding-the-bag'.

Because NZ's domestic spending takes place almost entirely using NZD AND on expanding debt-ledgers, non-home-owners have their NZD Coins stolen by the 'Landed Gentry' [whom are often highly leveraged].

NZD Coin developers are making their coin very inflationary. Good for home owners, but pointless to hold. A highly liquid and deflationary coin like Bitcoin is good in these situations and can always be converted to NZD Coin if required. Though crypto currencies have volatility, the likes of Bitcoin, being decentralized offers stability in monetary policy.

A guy trying to talk down the housing market who works for an organisation that does everything in its power to avoid deflation!

Bascand is still not sure if house prices are adrift from fundamentals after some firm 'cut the crap' tone from Jenee. If houses in Wgtn were average 2 million I suspect he would still be saying eeeoooeer hmmm we think they probably are getting that way-ee

Lot's of breathy non-committall word emitting without really saying anything. I agree. He was squirming. Houses could be $10 million each and they would still be verbally wriggling around and dancing on a pin - the word 'bubble' is absolutely verboten.

"Prices are starting to get a bit stretched". lol.

These guys have no idea how to fix this mess, no idea whatsoever. They don't know what to do so will just sit on their hands.

April sale prices just been sent to us from Northern Real Estate in Wgtn/Porirua/Lower Hutt. Things are getting even more out of hand. Just one example 28 Clapham Grove Stokes Valley sold for 640k in May 2020 and just sold again days ago for 840k.
13 Gillespies Road Birchville sold for 675k October 2020, resold for 830k on 1 May 2021. But let's wait and watch

They not sitting on their hands, they are pointing them at each other blaming each other, and they will continue to do so, as you're right they have no idea, the horse has not only bolted they can hardly see it, it's that far in the horizon.

Indeed.. they are interviewing potential Horse Wranglers but they're not too bothered as they're still receiving upkeep payments for the horse's keep.

Between Orr and Robertson teams I'll rather trust Orr.

Honestly, I have never heard a bigger load of cr*p in my life than what just came out of GB's mouth. My 2 yr old neice's word spaghetti garble makes more sense

Good grief. The body language! My god I’d love an expert in the field to give us a read of what all of this wriggling, sighing, repeating and squinting are really saying. I can have a bloody good guess though.....

Dribble..

It means he's having a difficult time pretending to believe his own bull and knows full well everyone sees right through it, and would rather be in a dentist chair having a root canal right now

Great to see someone actually asking some tough questions. Outstanding work as always jenee, I wish we had more journalists like you. Was a good reminder to me to make another donation to interest.co.nz