RBNZ pleased with new lending rules
The Reserve Bank says new mortgage restrictions have bit harder than it expected, as it continues to weigh up the conditions that would justify their removal.
The central bank introduced "speed limits" in October that restrict the amount of high loan-to-value ratio (LVR) loans that banks can issue.
Major lenders have since slashed their high-LVR lending to a small fraction of total loans to avoid any chance of running foul of the regulator.
During the four months to February, high-LVR loans fell to an average of 6.7 per cent of new lending, well under the 10 per cent limit imposed.
In an article in the latest Reserve Bank bulletin, the central bank said the share of high-LVR lending was lower than expected.
Including various forms of exempt lending not captured by the limits, the Reserve Bank had projected a total proportion of 15 per cent.
However, the actual figure so far is almost half that, at 7.8 per cent.
Exemptions are in place for the likes of Housing New Zealand's Welcome Home Loans, the refinancing of existing loans, and bridging finance.
However, those only totalled about 1 per cent of total lending, compared to the bank's forecast 5 per cent.
The article's author, macrofinancial department adviser Lamorna Rogers, noted the share of high-LVR lending could "modestly increase" as banks adjusted to the new framework.
She said the early signs showed the rules were having the desired effect of cooling the housing market and slowing credit growth.
The Reserve Bank's estimates suggest house-price inflation would have been about 2.5 percentage points higher in the year to February without the restrictions in place.
Rogers said the housing market had weakened, with seasonally adjusted house sales down by about 13 per cent over the five months to February.
The weaker housing market was also reflected in falling loan approvals, although changes in housing credit were slower to come through.
The article also backs up hints from deputy governor Grant Spencer last week that the Reserve Bank was thinking hard about when to remove the restrictions.
Spencer said that as interest rates moved back to more normal levels "we will expect to have greater scope to ease or remove the LVR restrictions".
The bulletin article affirms that the bank is continuing to consider the conditions that would justify their removal.
There is no set trigger, but the bank wants evidence of a better balance in the housing market, and confidence that removal would not lead to a resurgence of demand.
Rogers said the Reserve Bank recognised that the policy room provided by LVR restrictions could be only temporary.
"In the medium to longer term, imbalances will need to be resolved through appropriate longer-run policy measures, including actions to improve the housing supply," she said.
Prime Minister John Key dismissed concerns the LVR restrictions were seeing people boost their deposits with dodgy loans.
One or two non-bank lenders had emerged but the volume was small and the Reserve Bank was monitoring this, he said.
The advice he had received from the Reserve Bank was that at the margins some people were using non-bank lending to support their mortgages, but the bank did not think it was a significant issue.
"There was always going to be people that would do that, in fact the biggest single change they've seen is people are supporting their deposits with loans from their parents or family or friends.
"Overall the Reserve Bank's view I think is that the LVR restrictions have worked, they are starting to cool the Auckland housing market and it is likely have to increase interest rates by less because of the LVR restrictions."