RBNZ's Wheeler signals tougher loan to value ratio controls for investors 'towards the end of the year, or before that'; says debt to income controls a longer term prospect; confirms already in talks with English

RBNZ's Wheeler signals tougher loan to value ratio controls for investors 'towards the end of the year, or before that'; says debt to income controls a longer term prospect; confirms already in talks with English
Reserve Bank Governor Graeme Wheeler speaking at the June 9, 2016 Monetary Policy Statement news conference. Photo by Lynn Grieveson for Hive News.

By Bernard Hickey

Reserve Bank Governor Graeme Wheeler has signalled the bank is considering toughening its loan to value ratio (LVR) limits on lending to rental property investors "towards the end of the year, or before that."

Wheeler told a news conference for the bank's June quarter Monetary Policy Statement that discussions had already begun on both a new set of LVR controls and the longer-term potential for limiting debt to income (DTIs) multiples for mortgages.

The comments came after the Reserve Bank held the Official Cash Rate (OCR) at 2.25% and said it was concerned about how very high house price inflation in Auckland and other regions was adding to financial stability concerns.

"We've had discussions with the Finance Minister on Macro-Prudential tools. We've talked to the Finance Minister and said that we're doing some work on loan to value ratios, which the market is familiar with, and that we also wanted to do some work on debt to income ratios. We also said that that latter work is likely to take longer," Wheeler said.

"But we'll be probably talking with the Finance Minister in the next few weeks in terms of the consultative process that we go through," he said.

Asked if the Reserve Bank would have new controls in place before the end of this year, he said: "It's possible that we would be moving before the end of the year, or before that."

Wheeler said the Reserve Bank viewed the LVR controls as very successful because they had reduced the amount of highly leveraged lending by around NZ$20 billion and had reduced the share of highly leveraged mortgage lending from 21% before the first round of controls in November 2013 to 13% currently. The Reserve Bank introduced a second round of controls in November last year that targeted Auckland rental property investors by limiting their borrowing to 70% of the value of a property. Other borrowers are limited to 80%.

Targeting investors with LVRs first

"That's why we're also now in this situation looking at LVRs and saying 'Is there anything else we might need to do, particularly given the rapid growth in the volume of transactions that are related to investment properties'," he said.

Asked if the Reserve Bank was looking at increasing its deposit requirement for Auckland investors from the current 30%, Wheeler said: "It's just one of the scenarios that we're looking at. We haven't made any decisions on that."

"We're doing quite a lot of analysis at the moment around loan to value ratios and whether they should be modified in some way, and perhaps connected in to investor properties," he said.

"We're also doing some work on loan to income ratios, but that's analytical work that's probably going to take some time. We've been collecting debt to income (DTI) data from the large banks for about a year."

Asked if new LVR controls could come before a DTI limit, he said: "That's one of the possibilities."

Later in the news conference, Wheeler cited a recent conversation he had had with the Bank of Canada's Governor who said the investor share of property sales in Canada was around 10%. Wheeler contrasted that with the "pretty significant" share in New Zealand of over 40%, and how it was rising again in Auckland, Hamilton and Tauranga.

Core Logic reported this week that the investor share of property purchases in Auckland had spiked this year from a post LVR low of 40% in January to 46% in May, which Deputy Governor Grant Spencer also pointed to.

Spencer said New Zealand investors put relatively more into housing than Canadian investors, but that recent rises were a concern.

"If the investor component was stable, it would less concerning, but we have seen the share of investor sales increase, particularly in Auckland," he said.

"The fact that the share of sales and the share of credit going to the investor segment (has been increasing), does indicate that that has been adding pressure to the market."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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14
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How much analysis by the RBNZ and consultation with the Finance Minister is needed to figure out there is a problem with 46% of purchases in Auckland now be done by investors - in contrast to a more prudent 10% in Canada?

Surely another year's delay (with prospect of lower OCR in the meanwhile) will fuel the investor fueled frenzy further.

It is time to decouple OCR from rewarding investors with even lower mortgage interest rates - by some meaningful restrictions on unfettered speculation which is currently the situation. No need to give 6 to 12 month notice for 'consultation' and 'analysis'. It could be done by lunch tomorrow.

Or take the other route: Let speculation run rampant and let the whole charade collapse on itself. That would probably be a better outcome in the long run as it will have more impact on behavior. At the moment, the govt and RBA are only using tactics based on nudging theory.

Just waiting for the final ok from JK,RICHIE and DAN.

12
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Oh my days... "yo! Investors! Start panic buying rentals immediately, before I impose new restrictions LOL!" Graeme Wheeler.

Exactly. Has he got short term memory or is it intentional..

11
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By the time they introduce this investors will basically own everything anyway.

Yes, there are time lags. The probability of bank failure will go up before it goes back down again.

Yep, just as the radio ad says we should all be checking 'can you afford it?', buying our first investment property and then going to live on a beach in Raro before the new restrictions come in!

What ye waiting for?

Don't worry about three horse being euthanized at Ellerslie over the weekend all stable doors have now been flung open.Mayhem is sure to follow.

Bank of Korea surprises markets and cuts , cue Japan, Europe, China, the merry go round continues. NZD heading for parity v AUD. Graham Wheeler International banker of the year. He is in charge of a Central bank that does not know which path to take, which is more disturbing than many others.

12
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So the government will spring a surprise slashing of the kiwi saver kick start catching everyone on the back foot, yet leveraging up property investors / speculators get plenty of fore warning. Interesting times we live in...

Leveraged investors will be in for a shock once mortgage rates start going up though, and they will. Banks are now required to fund in their own name, rather than through their parent company. They will do this through the domestic and global bond markets, but have to pay up. They will do this through the retail deposit market, but have to pay up. They will find a way to attract wholesale short term funding that doesn’t have large capital charges, but have to pay up. Shareholders will still require the same ROE. Banks in this scenario probably wouldn’t mind shrinking their balance sheets. My bet is that they will do all this through mortgage rates.

http://www.macrobusiness.com.au/2016/05/fitch-i-wouldnt-call-banks-safe-...

I am not holding my breath on interest rates rises around the world.
most central banks have lost control of the debt mountains and sooner or later we will hit GFC2
we now have European companies issuing bonds to the central bank and the money is filtering into assets not consumer spending.

Im with you on that one. No debt crisis is ever going to bring about higher interest rates. They are locked into their own cycle with no way out but a reset button

Just to clarify, I don't think we'll see higher rates through policy, I think we'll see higher rates through bank margins.

Yes interest rates will go up...... sometime in the next 500 years

Analysis and Date Analysis and Data and No Action. Not a Rocket Science to see what is happening. Even if need to do analysis , should do it fast and introduce measure to put a brake on the madness that is happening all around. God Sake Stand up and do something. Government is totally in hibernation as far as housing bubble is concern. SHAME

Analysis and Date Analysis and Data and No Action. Not a Rocket Science to see what is happening. Even if need to do analysis , should do it fast and introduce measure to put a brake on the madness that is happening all around. God Sake Stand up and do something. Government is totally in hibernation as far as housing bubble is concern. SHAME

Data is coming everyday and the need is to implement new measures ASAP to but brake on the rampage.

What's he waiting for? A deity to send him a message?!

For quite a while now many of us have sensed the smell of political interference. Is this yet more evidence?

Most likely, they are probably on the one hand saying in public it's not their problem but the RBNZ's, while quietly instructing the RBNZ on what they don't what them to do behind the scenes, this government has it's sticky little fingers all over the place, like no other government I can ever remember in NZ history.
All the while flat out refusing to do anything about it themselves, they never cease to amaze, and that some people are still under the illusion that they are doing a good job amazes me even more.

If any of you have applied for a mortgage in the last 4 days you'll know banks have already pulled back and demanding higher deposits. Imagine they've been told to ahead of these announcements to reduce buyer flurry. Last week someone could finance a house and land build at 95% LVR and now at least 20% deposit needed (unless O.O).

In otherwords, don't spook the market that the risks are very real. Keep it quiet. This is bordering now on simply deceitful and dis-ingenious behavior to cover their own asses.

Does that apply to re-financing and roll-overs on investment properties, or New Mortgages only?

Is anyone actually steering the bus(t), or are they standing up there and saying "you do it" ?

Exporters are paying for immigration housing demand, with high exchange rate.
Young NZers are paying for immigration, with reduced job opportunities.
Workers are paying for immigration, with lower wages.
Property investors are paying for immigration housing demand, with increased taxes and higher interest rates than are necessary.
The taxpayer is paying for immigration, with the cost of billions of dollars needed for overwhelmed infrastructure.
The ratepayers are paying for immigration housing demand, as the councils need money to provide infrastructure.
The firsthome buyers are paying for immigration, as the price of houses double in 7 yrs.
The low waged and beneficiary community pay for immigration housing demand, as they get displaced from the cheaper housing and become homeless.
The NIMBY's pay for immigration, by loosing their neighborhoods and quality of life.
So who wants our high immigration other than car salesman and real estate agents???

Is this what as known as the "gordian knot" ?

John Key?

Ironic while 40,000-50,000 New Zealanders moved to Australia annually over the last 15 years. Hypocritical of you Kiwis to complain over just 1 year of high immigration.

Australia grew by the total population size of New Zealand in just the last 13 years.

Quality of life? NZ is ranked 3rd in quality of life 2016 according to (numbeo) just behind Switzerland & Denmark.

how many were born here or just stopped long enough to collect a NZ passport.
also a kiwi in aussie is on a special visa that can be revoked at any time by the authorities and deported home.
and also an aussie in NZ can claim any benefits or privileges that a kiwi can BUT in aussie (thanks helen) a kiwi does not have reciprocal rights.
http://www.stuff.co.nz/world/australia/78998518/New-Zealanders-in-Austra...

And so it continues...

Loan to Income ratio's ... smartest thing this man has said in years...

Investor Demand is the number 1 cause of the housing crisis.... supply number 2.

"Governor who said the investor share of property sales in Canada was around 10%. Wheeler contrasted that with the "pretty significant" share in New Zealand of over 40% "

There is your Housing Crisis.... Investor Demand 4 times that of Canada

"We're also doing some work on loan to income ratios, but that's analytical work that's probably going to take some time. We've been collecting debt to income (DTI) data from the large banks for about a year."

Take some time .... lol ..... how much time does he need ? He has been talking about this for years.

They need to rename themselves eh to the RCIBNZ The Reserved Conservative Impotent Bank of NZ

40% is ridiculously economically undermining, let alone the actual 80% figures in many smaller NZ towns!

Wealth and Asset concentration is always bad for economies

All are bluffing newzealanders. This is the price that we have to pay for weak opposition and media.

NZ Govt Bonds yield 2.25% for 10 years.Auckland property yields around 3.5%. Where will investors put their money?
Need to introduce taxes of some form on those who don't live in their own homes.

All are bluffing newzealanders. This is the price that we have to pay for weak opposition and media.

All are bluffing newzealanders. This is the price that we have to pay for weak opposition and media.

Do not understand why the national is not ready to accept the problem, so how will they solve it. All this plsining, data is utter nonsence otherwise they should know that this is the time to act.

WHY NOT NOW RBNZ

If serious Why not now RBNZ instead of waiting till end of year. All datas are out in public domain n do not have to be rocket scientist to analyize it for ages. Could have been done yesterday but the intent is lacking. Why is everyone waiting for election year to take some action. Is it only about election and power and hell to the welfare of the nation.