By Bernard Hickey
Two banking sources have told me the Reserve Bank advised them informally on Friday that it would set a 'speed limit' of 12% for growth of high LVR (loan to value ratio) mortgages and that a public announcement was due within days.
This would mean a maximum of 12% of total new mortgages would allowed to be in the 80% + LVR category, significantly below the 30% share of growth seen over the last year for such low deposit mortgages.
Mortgage lending grew by a total of NZ$9.2 billion or 5.3% in the year to May to NZ$182.661 billion, Reserve Bank figures. The bank has estimated about 30% or NZ$2.76 billion of that growth in the last year was in high LVR categories above 80%. It previously signaled in its June 4 consultation paper that it could, for example, impose a 'speed limit' of 10% on the proportion of growth coming from the high LVR category. Consultation ended last Wednesday.
If the speed limit was imposed at 12%, lending growth would slow sharply. If it had been imposed a year ago and banks went right up to the edge of the limit and still lent a total extra NZ$9.2 blllion, then the high LVR lending would have been NZ$1.66 billion lower at NZ$1.1 billion. Bankers said in reality the banks would be reluctant to go too hard up against the 12% limit, given it would be a condition of their banking license, suggesting banks would instead in practice opt for a lower number around 10%.
The sources said an announcement was expected within days and appeared not to have any exemptions for first home buyers, as had been suggested by Prime Minister John Key. The bank has previously signalled it could impose the speed limit with as little as two weeks notice and that it was opposed to such exemptions for particularly classes of buyers.
The banking sources said banks would struggle to deal with such a short time frame, given there were large backlogs of pre-approved high LVR mortgages.
Reserve Bank spokesman Angus Barclay declined to comment on whether the Reserve Bank had made a decision or, if it had, when it might make an announcement.
Finance Minister Bill English's spokesman Craig Howie said nothing had changed since English told reporters last week the government was still consulting with the Reserve Bank over the implementation of the banks' 'macro-prudential' tools, including the potential for speed limits. Howie said the Reserve Bank Governor had always had the "independent power under the 1989 Reserve Bank Act" to make such decisions, although the Minister did not expect any announcement "in the next few days."
If the speed limit is imposed without exemptions, this would be a knock back for Key, who had pushed hard for exemptions for first home buyers. Deputy Governor Grant Spencer said in this June 27 speech the bank was opposed to such exemptions.
Labour reacts
Labour Housing spokesman Phil Twyford said Labour supported the use of such macro-prudential tools for economic reasons, but would exempt first home buyers while the government built affordable homes and applied a Capital Gains Tax on rental properties and second homes.
"To do this now is a huge kick in the teeth for first home buyers," Twyford told Interest.co.nz.
"It advantages property investors and locks out first home buyers," he said.
“National’s policy will mostly hurt low to middle income earners in provincial cities and south and west Auckland. Wealthy people buying in the hot parts of the market in Auckland will be much less affected."
"It’s the lack of affordable homes. House prices are increasing because therein the market and very few new homes are being built in an affordable price range,” Parker said
(Updated with Twyford and Parker comments; also updated comments from English's office)
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