Curbs on first home may ease up a little
First-home buyers might get some relief in applying for mortgage loans, economists say.
In an article in the latest Reserve Bank bulletin, the central bank said new mortgage restrictions had bit harder than it expected, and bank economists predict a rise in low-deposit lending.
The Reserve Bank introduced "speed limits" in October which restrict the number 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.
UBS New Zealand senior economist Robin Clements said the market was progressing in the way the Reserve Bank wanted.
"House sales dropped further than they would have thought, and house prices were moderated in the range expected."
However, credit growth had not really slowed, he said.
Clements said that, while he did not see these restrictions being lifted for at least another year, banks could now raise low-deposit lending to get closer to the limit.
ANZ National chief economist Cameron Bagrie said banks would now have "a little bit more flexibility to be a bit more aggressive in that [low-deposit loan] market".
Westpac chief economist Dominick Stephens said banks had probably been overly cautious, and this could potentially lead the Reserve Bank to lift the restriction to 15 per cent in a few months' time to get lending to first-home buyers more in line with what was originally intended.
"The banks may themselves loosen up to lending more high LVR (loans), in which case the Reserve Bank won't need to do anything.
"Either way, what's going to happen is more lending to first-home buyers three or six months from now than you have at the moment."
Real Estate Institute of New Zealand (REINZ) Tony McPherson said he expected banks to ease their selection process for low-deposit loans.
He said the Reserve Bank limitations had changed the demographics of house buyers.
"It's singled out first-home buyers and made it more difficult for them to get a mortgage."
The Reserve Bank had projected a total proportion of high-LVR loans of 15 per cent, including various forms of exempt lending not captured by the limits.
But 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. But those totalled only about 1 per cent of total lending, compared with 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 weaker housing market was also reflected in falling loan approvals, although changes in housing credit were slower to come through.
But New Zealand Institute of Economic Research principal economist Shamubeel Eaqub said the impact of the Reserve Bank limitations on the housing market had been "very small", especially with changing policy on new home builds earlier this year.
"Banks have increased traditional mortgage lending, and reduced high LVR lending because of the new policy . . . The proportion that was going to high LVR is now going to low LVR.
"If the target is to reduce house price growth and control inflation, you need to reduce total credit growth," he said.
The Reserve Bank's article also backs up hints from deputy governor Grant Spencer last week that it was thinking hard about when to remove the restrictions.