Greens, Labour go ballistic over LVRs limit

Property

Labour accuses PM Key of 'handing loaded gun' to RBNZ on high LVRs speed limit policy; Greens want Key to over-ride RBNZ with first home buyers exemption

16th Jul 13, 1:10pm by Bernard Hickey

By Bernard Hickey

Labour and the Greens have come out all guns blazing in an attempt to pin the blame for any restrictions on high loan to value ratio (LVR) mortgages on the government and win over the sympathy of first home buying voters.

Both have accused the National-led Government of allowing the Reserve Bank to 'lock out' first home buyers from buying a house. Both have called for exemptions for first home buyers and for the government to intervene to over-rule the Reserve Bank.

Labour Housing Spokesman Phil Twyford and Finance Spokesman David Parker said Key's handling of the Reserve Bank's macroprudential policy tool was incompetent and was "set to deny thousands of Kiwis a shot at their first home."

“John Key has completely mishandled the lending limits plan from the very beginning. His negligence has handed the Reserve Bank a loaded gun of lending limits. He can't now fake surprise that it is about to pull the trigger,” said Twyford.

“In May National caved in to the pressure, signing a Memorandum of Understanding with the Reserve Bank that would allow it to restrict high value mortgages. As usual John Key took a once-over-lightly approach and didn’t realise the ramifications for first home buyers," he said.

“It wasn’t until a month later that Mr Key realised what he had done. He then tried to negotiate through the media to put pressure on Reserve Bank Governor Graeme Wheeler. But the primary purpose of the Reserve Bank is to be independent and not listen to political pressure."

Labour said in government it would give first home buyers an 'interim exemption from the 'speed limit' on high LVR lending while it built 100,000 homes in 10 years and imposed a capital gains tax on second homes and rental properties.

Green Party co-leader Russel Norman said first home buyers should have more lenient LVRs than property investors.

“LVRs should be more lenient for first home buyers than for property investors. It would be unfair to require large deposits from first home buyers. They’re not the ones forcing up houses prices - speculators are," Norman said.

“It’s very concerning that John Key doesn’t seem to be fighting for first home buyers and is standing by while the Reserve Bank moves to lock many of them out of buying a home. LVRs are a good move but they should be targeted at property investors and speculators, not at families trying to buy a home, and they shouldn’t be the only tool."

The Green Party has also backed a Capital Gains Tax, excluding the family home, restrictions on non-resident purchases of residential property and a government-led programme of house building.

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29 Comments

by ngakonui gold | 16th Jul 13, 1:29pm 1373938199

Labour had 9 years to do something about housing.

What did they do?

What do they intend to do now?

by steven | 16th Jul 13, 7:14pm 1373958842

Hell for leather make it worse thats what they intend to do.

regards

by The_Duke | 16th Jul 13, 1:32pm 1373938340

Well, come on Green Party haters... don't dally, where are you all?

by Chairman Moa | 16th Jul 13, 1:36pm 1373938589

Subsidy the poor into homes with newly printed money..

by MikeM | 16th Jul 13, 2:04pm 1373940275

What the politicians don't seem to understand is that if first home buyers are exempted from the proposed LVR policy it basically defeats the purpose of it in the first place. The idea is to reduce risk in the financial system and whether we like it or not, highly leveraged first home buyers represent the highest risk group.

Once again, politicians are overriding any sound reasoning with the fear of vote losses.

by steven | 16th Jul 13, 7:17pm 1373959055

They are also the main drivers of the bubble...cool them and you cool the market.

regards

by Justice | 16th Jul 13, 9:12pm 1373965933

What utter rubbish Steven!

First home buyers aren't the ones pulling out all the fake dosh to make a risky loan.......the BANKS are!

Get you goddamn facts straight the lot of you!

Banks create loans.

by Chairman Moa | 16th Jul 13, 2:35pm 1373942127

Am I wrong that the RBNZ is meant to be independent of govt and report to a committee with all sides on board?

If so WTF what are they on about???

by steven | 16th Jul 13, 7:12pm 1373958734

They are on about vote grabbing....pure and simple...cynical...

regards

by Stephen Hulme | 16th Jul 13, 3:46pm 1373946400

For once we have the makings of a great Reserve Bank Governor.

Well he might wish to address the distortions that are imposed upon the foreign exchange swap markets by allowing the locally incorporated banks to lend 140% of local deposits.

Excess foreign wholesale loans are currency swapped back into NZDs to affect hedged borrowing - unfortunately recent Bank of Japan and US Federal Reserve actions have resulted in a massive upward revaluation of the USD leg of many currency pairs, including our own.

Currency swap related mark-to-market collateral transfers have resulted in our banks reaching USD currency exposure limits, hence creating an unwillingness to sell NZD which would further expose them to USD. The NZ leg of the FX O/N NZD/USD swap rate has moved to 3.38% as a consequence. This places negative cost pressure on those wishing to sell the NZD/USD currency pair to foster higher NZD export receipts.

by iconoclast | 16th Jul 13, 5:40pm 1373953202

Stephen Hulme: what? - are you saying the local banks have (or soon will have) taken a hair-cut on their off-shore USD wholesale funding? that stuff that's been pumping up the local market?

Guess they can keep rolling it over - at what risk?

by Stephen Hulme | 16th Jul 13, 6:19pm 1373955575

Not at all - they swapped borrowed USD to collateralise the receipt of NZD under the terms of the currency swap. That collateral is worth more now and hence the NZD source counterparty has to return the excess to our banks. But as explained to me they are nearing their USD exposure limits in terms of USD deposits in New York banks and are now reluctant to engage in the acquisition of more USD assets when conducting foreign ecchange trades on behalf of customers. Hence they make it expensive to roll short NZD/USD positions. Just one of the unfortunate side effects of relying on such significant foreign wholesale borrowing relative to the size of the country, in volatile times.

The RBNZ is battling to soak up the USD with further excursions into the currency swap market by offering collateralised printed NZD to the banks at one end of the spectrum and soaking up the local liquidity excess by engaging in another collateralised operation - ie repo. They are taking these NZD back in return for NZ goverrnment stock. All rather farcical, except the arbitrage is profitable for the RBNZ.

Unfortunately Deputy Governor Spencer decreed that the release of currency swap trades must be delayed by months. D10, Section 10

by Stephen L | 16th Jul 13, 8:58pm 1373965084

Stephen,

I am I think with iconoclast in suspecting that what you are saying is important, but not fully understanding it. Up to you; but if you have the time to take this back to first principles and explain the money flow from start to finish, then that would be informative to me in any case.

by Henry_Tull | 16th Jul 13, 9:43pm 1373967816

Its not a sign of wellness....

Shows the system is run to red line (lending v local deposits) meaning other bits of gear may fall off (exporter gets a dud rate to bring funds back to $NZ, with the bank telling him, our fantastic mortgage business is restricting our corporate FX business)...

Other shocks (yet not seen) will so to deliver unexpected impacts.... As the system settings are in "our" control (the gov), the impacts will be from our (his) own hand or seen as an own goal.... - nothing to do with the bankies, they will tell us...

So with the system run to red line, means we are not safe as houses....

by Stephen Hulme | 16th Jul 13, 10:22pm 1373970168

Henry you are not wrong. The RBNZ @ current levels of nz government securities ownership has limited facility to absorb the banks' excessive USD exposure by initiating additional currency swaps while simultaneously sterilising the NZD liquidity injections utilising repo drains - that is RBNZ taking in banks' excess cash in return for giving up nz government stock to them. Today it was NZD 1.0 billion when they demanded NZD 2.3 billion. Tomorrow NZD 3-4 billion? Who knows? Certainly not the vulnerable unrewarded depositor.

The RBNZ ran down the government securities collateral in favour of holding foreign currency swap related assets to back the currency in circulation.

by Stephen Hulme | 16th Jul 13, 9:46pm 1373968003

Possibly, at another time - it is a step learning curve for those without prior exposure to concrete examples.

by iconoclast | 17th Jul 13, 11:47am 1374018427

Stephen Hulme: I think you partially explained it here a couple of months ago. Obviously it didn't sink in. As per StephenL's request it would be appreciated if you could do a step-by-step explanation. Could you publish it up on your OMO web-site for posterity?

by Stephen Hulme | 18th Jul 13, 5:14pm 1374124457

Learning to calculate implied interest rates from FX forward pip spreads is a start.

by iconoclast | 18th Jul 13, 5:24pm 1374125079

Stephen Hulme: I didn't follow the BIS links, but reading through your post, got as far as the word "procyclicality" and stopped

by Stephen Hulme | 18th Jul 13, 5:33pm 1374125629

I suggest you employ a personal tutor to walk you through these not too difficult concepts as I have to address the more pressing problems of my model UAV builds.

by iconoclast | 18th Jul 13, 5:42pm 1374126156

In Colorado, farmers are being paid a bounty to shoot the buggers down

by Stephen Hulme | 18th Jul 13, 7:05pm 1374131156

I don't need outside help. Notably, the US armed forces keep seeking the company of my misery.

by steven | 16th Jul 13, 7:10pm 1373958622

I will agree with you on this....The Green's and Labour are out for vote grabbing, pure and simple...when in fact Labour for one are significantly responsible for this mess.....

regards

by Stephen L | 16th Jul 13, 9:26pm 1373966801

Am mildly intrigued, steven. Who would you vote for if an election were to happen tomorrow? For some reason I had you down as a Green supporter.

by Boatman | 16th Jul 13, 3:54pm 1373946847

Russel Norman is being opportunistic on so many levels its ridiculous

Firstly its not John Key's fault that the Auckland housing market is overheated.

Secondly , the Reserve Bank is an independant body not unlike the Crown , its not a political football , they have to do what is right not bowing to pollys

It will distort the market if any group of buyers get special dispensation to be exempt from the rules , which will have uninteded consequences . The price of lower priced houses bought by first timers will skyrocket even more

Labour and the Greens will never be able to acquire 100,000 sections and build 100,000 houses , the Government is broke already and the only way to do this is to tax and spend, .... it aint going to happen.

This is not Norway with natural gas and offshore oilfields providing the royalites , taxes and funds to build houses for everyone, although ...........ah the Greens have stopped that one from happening .

Its utopian to think the Government can build a house for every person to own and the Greens are being delusional in their ideological fairyland ....and thats apart from the fact we dont have enough artisans to keep up with current demand and a host of other logistical issues , including restrictions on land supply in Auckland

by steven | 16th Jul 13, 7:05pm 1373958350

All I can say is what second rate vote buyers....if they bothered to understand the economics they'd know full well the ever increasing leverage from first time buyers is the krux of the problem causing the bubble.

Seems they are as intent on driving us into a depression as National, if not more so.

Good for Mr Wheeler, at least someone appreas to understand and act.

regards

by Stephen L | 16th Jul 13, 9:24pm 1373966679

In my view Labour and the Greens are correct. So is Mr Wheeler, in doing the job according to the brief that Key and English have given him- to maintain bank stability, and inflation at 1-3%. Labour and the Greens are saying they would change the brief. Mr Wheeler seems sensible enough to work to such an amended brief, if it were made.

There are almost certainly two categories of house buyers who are using very high LVRs. New home buyers (because they have little choice); and multiple property buy to let landlords. Many of the BTL landlords as I understand it use virtually 100% loans, financed by rents, and with the collective equity of previous purchases as collateral. Nothing particularly wrong with that, they are providing a useful service. Except in a low interest environment, (and where government funded housing supplements give them a back stop) they will be the marginal effect that will lift prices beyond anything affordable for new home buyers, and where the financial stability of the whole system is threatened. Take them out, or at least reduce their LVR limits, and price pressures would almost certainly ease.

And new home buyers would have affordable houses even at high LVRs.

by Justice | 16th Jul 13, 9:19pm 1373966397

IF the RBNZ decide to go ahead with this plan, then I would suggest that any/all savings of the people who want a first home will take their money from the major street banks elsewhere. Maybe to a Building Society who are not 'registered' banks and don't have to follow any RBNZ rules. Those BS's that don't have their own funds with one of the major banks of course

As a collective........depositors withdrawing on mass can bring down this corrupt system.

Savers and depositors are being made the scapegoats of a disastrous decade of RBNZ bubble creating. For historical notes, those bubbles they help create are:

1: The NZ house price/property bubble via following the Greenspan Plan, and

2: The overvalued NZD based on all that ridiculous debt lending.

LVR's are like moving the deck chairs on the Titanic

by Andrew Atkin | 18th Jul 13, 3:38pm 1374118709

Neither Labour nor the Greens could care less. They are not running the country - they are in point scoring mode.