Low deposit lending halved in October following the introduction of the Reserve Bank's lending limits aimed at curbing house price inflation.
The Reserve Bank controversially imposed the lending limits on October 1, meaning banks can now only make 10 per cent of total mortgage lending to people with deposits of less than 20 per cent. A loan based on a small deposit has a high loan-to-value ratio (LVR).
The lending limits have faced criticism that they are benefiting property investors and pushing first home buyers out of the market.
The Reserve Bank announced today that high-LVR lending fell to 11.7 per cent of total new mortgage lending in October, with exempted lending accounting for an additional 1.1 per cent.
The 10 per cent limit excludes any high LVR loans made under Housing New Zealand's Welcome Home Loans scheme, the refinancing of existing high-LVR loans, bridging finance or the transfer of existing high-LVR loans between properties.
The Reserve Bank announced today that high-LVR lending made up only 12.8 per cent of total mortgage lending in October, down from 25.5 per cent in September and about 30 per cent earlier in the year.
Deputy Governor Grant Spencer said the result showed banks were adjusting to the new policy and were well placed to meet the speed limit.
"The reduction in high-LVR lending will help to reduce the risks of a sharp correction in house prices in an already overvalued housing market. Such a correction could be damaging for the financial sector and broader economy," he said.
Banks were still currently managing mortgages approved before the limits were imposed, and the share of high-LVR loans was expected to fall further in the coming months as those approvals ran out, he said.
It was still too early to say what effect the limits were having on house prices.
Real estate agents have reported a decline in the number of first home buyers and a rise in investor interest as a result of the limits.
- © Fairfax NZ News
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