Archive | Reserve Bank

Reserve Bank holds cashrate, warns of Government policy uncertainties

The Reserve Bank left the official cashrate unchanged at 1.75% today. Alongside that certainty, bank governor Grant Spencer said the impact of policies of the new government were uncertain.

Bank governor Grant Spencer said: “Global economic growth continues to improve, although inflation & wage outcomes remain subdued. Commodity prices are relatively stable. Bond yields & credit spreads remain low and equity prices are near record levels. Monetary policy remains easy in the advanced economies but is gradually becoming less stimulatory.

The exchange rate has eased since the August monetary policy statement and, if sustained, will increase tradables inflation and promote more balanced growth.

GDP in the June quarter grew broadly in line with expectations, following relative weakness in the previous 2 quarters. Employment growth has been strong and gdp growth is projected to strengthen, with a weaker outlook for housing & construction offset by accommodative monetary policy, the continued high terms of trade and increased fiscal stimulus.

The bank has incorporated preliminary estimates of the impact of new government policies in 4 areas: new government spending, the KiwiBuild programme, tighter visa requirements and increases in the minimum wage. The impact of these policies remains very uncertain.

House price inflation has moderated due to loan:value ratio restrictions, affordability constraints, reduced foreign demand and a tightening in credit conditions. Low house price inflation is expected to continue, reinforced by new government policies on housing.

Annual CPI inflation was 1.9% in September, although underlying inflation remains subdued. Non-tradables inflation is moderate but expected to increase gradually as capacity pressures increase. Tradables inflation has increased due to the lower $NZ & higher oil prices, but is expected to soften in line with projected low global inflation. Overall, CPI inflation is projected to remain near the midpoint of the target range and longer-term inflation expectations are well anchored at 2%.

Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.

Link: Monetary policy statement

Attribution: Bank release.

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Reserve Bank plays unchanged game, and Peters unimpressed

The Reserve Bank left the official cashrate unchanged at 1.75% yesterday.

The bank’s acting governor, Grant Spencer, said: ‘”Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.”

This nudging along of economic policy doesn’t sit well with the man with the most influential say on future directions, NZ First leader Winston Peters.

Winston Peters.

While voters who believe we’re still in the era of first-past-the-post elections have been busily writing letters to editors explaining that, as National got most votes, it therefore won and should govern, Mr Peters has issued a few statements indicating likely shifts in economic direction:

  • He said the decision to hold the official cashrate at 1.75% “maintains the tone of complacency on New Zealand’s economic outlook”
  • He criticised National for taxing the NZ Superannuation Fund and not making taxpayer contributions for 10 years, and
  • 2 days before the election, he issued a statement affirming his view that the immigration level was too high, criticising the National government “for deluding the public these migrants are skilled”.

Those who see Mr Peters as a negative poser should find his advocacy for change refreshing, because all his policies of the last week have been about improving economic performance.

He issued succinct statements on what the Super Fund ought to be doing, how the Government ought to be supporting it and how international markets bloated with ultra-cheap money are riding for a fall.

Crucially, Mr Peters might change the view commonly held by Western central bankers, including New Zealand’s, that the policy of printing money to stimulate economies is flawed.

But first the Reserve Bank view, from Mr Spencer:

Grant Spencer.

“Global economic growth has continued to improve in recent quarters. However, inflation & wage outcomes remain subdued across the advanced economies and challenges remain with ongoing surplus capacity. Bond yields are low, credit spreads have narrowed and equity prices are near record levels. Monetary policy is expected to remain stimulatory in the advanced economies, but less so going forward.

“The trade-weighted exchange rate has eased slightly since the August Reserve Bank monetary policy statement. A lower $NZ would help to increase tradables inflation and deliver more balanced growth.

“GDP in the June quarter grew in line with expectations, following relative weakness in the previous 2 quarters. While exports recovered, construction was weaker than expected. Growth is projected to maintain its current pace going forward, supported by accommodative monetary policy, population growth, elevated terms of trade and fiscal stimulus.

“House price inflation continues to moderate due to loan:value ratio restrictions, affordability constraints and a tightening in credit conditions. This moderation is expected to continue, although there remains a risk of resurgence in prices given population growth & resource constraints in the construction sector.

“Annual CPI inflation eased in the June quarter, but remains within the target range. Headline inflation is likely to decline in coming quarters, reflecting volatility in tradables inflation. Non-tradables inflation remains moderate but is expected to increase gradually as capacity pressure increases, bringing headline inflation to the midpoint of the target range over the medium term. Longer-term inflation expectations remain well anchored at around 2%.

“Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.”

If you think those closing words are familiar, you’re right: they’re identical to the bank’s closing paragraph in its March statement.

Peters on Reserve Bank

Mr Peters saw less of the smoothing, more a likelihood of troubled times internationally: “Beneath the veneer of stability, large risks are lurking in the global economy. The prolonged era of ultra-cheap money has created expectations that this unprecedented period will continue forever. Fed by cheap money, share & property markets are at record levels and have a long way to fall. In particular, the US share market has had an amazing run with barely a hiccup. In China, debt levels are staggering.

“Irrational exuberance rules. It is impossible to predict when, but something will go wrong and New Zealand should be prepared.”

On the Super Fund

The NZ Super Fund reported a 20.7% return for the year on Wednesday, but Mr Peters went behind that performance to look at a gigantic loss brought about by 2 National acts: “National should apologise to New Zealanders for robbing their NZ Super nest egg,” he said.

“Taxing the NZ Superannuation Fund, and not making taxpayer contributions for 10 years is a serious economic loser.

“The magnificent 20.7% return achieved by the fund in the year to 30 June will help meet future demand for NZ Super, but the nest egg could have been so much bigger if the National government had kept its hands off it.

“In 2015, then Finance Minister Bill English said: ‘Over time, along with the other funds, it will become a more & more significant part of the economy’. That’s ironic given he started taxing it in 2014.

“NZ First would encourage the fund’s managers to invest in infrastructure in New Zealand so it works for New Zealand’s long-term interests.”

On immigration

As for the high net immigration level – 73,500 in the year to August – Mr Peters said it would ensure housing, health services & infrastructure would continue at bursting point.

“The Government deludes the public these migrants are skilled – it’s a myth, most of them are unskilled & drawn to this country in many cases by the generosity of our social services.

“Few countries in the world are as generous, or soft, as we are. Where are the new hospitals, the extra doctors & nurses, the new schools & general infrastructure to cope with all these people?

“New Zealanders find it harder to get a job with the influx from overseas. The fact is, every year we are creating a city the size of Rotorua and the country cannot handle it. Even the Prime Minister [Bill English, in a reference 2 days before the election] admits they can’t keep up with population growth.”

Earlier stories:
22 September 2017: An immigration pause – or a turning point?
6 September 2017: Updated: Reserve Bank sublets to help pay the rent
5 July 2017: Super fund explains tilting strategy
9 June 2017: Reserve Bank raises question of new debt:income loan limits
23 March 2017: Housing supply the main concern as Reserve Bank holds cashrate
30 September 2014: Super guardians pose some investment thoughts
29 September 2008: NZ Super Fund has $2 billion turnaround to $880 million loss

Attribution: Bank & Peters releases.

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Updated: Reserve Bank sublets to help pay the rent

Published 4 September 2017, updated 6 September 2017:
The Reserve Bank has gone further into commercial sub-leasing – not because it saw how to use space better, but to meet its schedule of payments to the Government. The NZ Defence Force has signed a lease to occupy 3 floors in the Reserve Bank building in Wellington, beginning sometime in the next 4 months (the bank said ‘later this year’).

Update paragraph: The bank told me yesterday it owned the building and wasn’t subletting. In my shorthand I called it subletting because the bank is leasing out space so it can pay its owner, the Government, not because it didn’t need the space. Strictly, it’s a lease. In effect, the bank’s not an owner in control.

The bank’s head of currency, property & security, Steve Gordon, said today the Defence Force would be the fourth tenant in the building, joining the Parliamentary Counsel Office, Parliamentary Commissioner for the Environment and the State Services Commission.

He said the bank had vacated the floors being leased to the Defence Force as part of a strategy to increase its property income to meet its funding agreement.

The bank has been leasing space in the building, at No 2 The Terrace, since at least mid-2016.

Mr Gordon said the appeal of the building lay in its top seismic rating & proximity to Parliament. The building is being refurbished to modernise its interior.

Attribution: Bank release.

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Reserve Bank raises question of new debt:income loan limits

The Reserve Bank published a consultation paper yesterday seeking feedback on serviceability restrictions such as debt:income (DTI) limits on loans being added to its macro-prudential toolkit.

The notion immediately drew fire, but the bank said it wanted feedback from stakeholders on alternatives as well. The 3 questions:

  • the risks posed by high debt:income lending and the potential for a debt:income limit or similar policy to ameliorate these risks
  • alternative policies under the Reserve Bank’s control and how they would compare to a debt:income limit, and
  • desirable design features for any debt:income policy and the potential costs & benefits.

The bank has outlined its views on these issues in the consultation and said it wouldn’t implement a debt:income policy in current market conditions, but that it considered debt:income limits could be a useful option in the future.

The consultation paper includes a cost:benefit analysis for a debt:income policy and found there could be significant net benefits.

Feedback closes with the bank on Friday 18 August.

Property Institute warning

Property Institute chief executive Ashley Church repeated his warning that such limits on mortgage lending “would have the potential to do significant damage to the Auckland housing market & the wider New Zealand economy”.

Mr Church said a similar policy introduced in the UK in July 2014 theoretically restricted a buyer to a mortgage that didn’t exceed 4.5 times their annual earnings, but it wasn’t compulsory for banks to impose it and it only applied to a section of the market: “The Brits wisely chose to use this tool as a way to protect those who were at most risk of a market crash rather than as a blunt tool to curb house price inflation. But our Reserve Bank already has that ability in the form of the LVR restrictions – so you’d have to question why they would want this tool unless they want to kill the market – something they’ve repeatedly tried, and failed, to do.” 

Mr Church says the probable consequences of such a policy would be disastrous: “The number of new homes being built – the very thing that Auckland needs most – would plunge as the number of people earning enough to build or buy them would dwindle to a trickle. So the policy could very well kill off the one thing that can fix the Auckland housing crisis – the construction of new homes.”

He said the policy would also lead to a dramatic increase in rents over a relatively short space of time as property investors looked for ways to increase income so they could buy more property: “In an environment where every extra dollar enhances borrowing power, landlords will want to maximum rentals and they’ll be able to do it because the Reserve Bank policy will exacerbate the current housing shortage.”

Mr Church said a debt:income policy could also:

  • create a further barrier to young people looking to buy their first home, “a prospect already made almost impossible by the Reserve Bank clampdown on loan:value lending”, and
  • restrict or eliminate the ability of small business owners to use the equity in their home as security for cashflow, potentially putting thousands of small businesses at risk.

Mr Church said recent house price inflation in Auckland was the result of strong demand and a severe lack of supply, and that the Reserve Bank’s efforts to artificially slow down demand had made the situation much worse.

Reserve Bank says loan:value restrictions have worked

The Reserve Bank introduced loan:value ratio restrictions in 2013 to mitigate the risks to financial system stability posed by a growing proportion of residential mortgage loans with high loan:value ratio (ie, low deposit or low equity loans).

The bank said in its summary of the new paper: “This increase in borrower leverage had gone hand in hand with significant increases in house prices, particularly in Auckland. The Reserve Bank’s concern was the possibility of a sharp fall in house prices, in adverse economic circumstances where some borrowers had trouble servicing loans. Such an event had the potential to undermine bank asset quality given the limited equity held by some borrowers.”

The bank said it believed loan:value ratio restrictions had been effective in reducing the risk to financial system stability.

The bank has produced evidence in its paper that a debt:income limit “would reduce credit growth during the upswing and reduce the risk of a significant rise in mortgage defaults during a subsequent severe economic downturn.

“A debt:income limit could also reduce the severity of the decline in house prices & economic growth in that severe downturn (since fewer households would be forced to sharply constrain their consumption or sell their house, even if they avoided actual default). The strongest evidence that these channels could materially worsen an economic downturn tends to come from countries that have experienced a housing crisis in recent history, (including the UK & Ireland.”

Link: Consultation document: Serviceability restrictions as a potential macroprudential tool in NZ

Attribution: Bank & Property Institute releases, bank paper.

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Reserve Bank releases capital adequacy issues paper

The Reserve Bank published an issues paper today on regulation of banks’ capital adequacy.

It’s seeking feedback by Friday 9 June and will follow up with detailed consultation documents on policy proposals & options for each of 3 components later this year, with a view to concluding the review by the first quarter of 2018.

Deputy governor Grant Spencer foreshadowed the broad-ranging capital review in March, in a speech in which he compared the average housing risk weights of large banks in 6 countries.

New Zealand was clearly the most heavily weighted towards housing at 28.3%, followed by Australia at 23.5% (and its bank overseers also tightening the reins), then a long way back to Denmark 13.9%, the UK 11.7%, Canada 7.2%, Sweden 6.8%.

The Reserve Bank aims to identify the most appropriate capital adequacy framework, taking into account experience with the current framework & international developments.

The review will focus on the 3 key components of the current framework:

  • The definition of eligible capital instruments
  • The measurement of risk, and
  • The minimum capital ratios & buffers.

Paper sets out 2 sides

In its issues paper summary, the bank said it recognised the need to balance the benefits of higher capital against the costs, but set out 2 sides to the argument: “It is expected that a higher level of capital would reduce the probability & severity of bank failures and would smooth out credit cycles.

“But banks typically argue that capital is a costly source of funding and that if they had to seek more of it they would need to pass on costs to customers, leading to reduced investment & growth.

“There has been debate about the extent to which these costs reduce national welfare. In one view the capital levels of banks are inefficiently low because of implicit government guarantees of creditors or other incentives. Raising the minimum capital requirement restores efficiency by reversing the implicit subsidy to bank shareholders, and in this way improves overall welfare.

“A growing number of academics, most notably Anat Admati from Stanford University & Martin Hellwig from the Max Planck Institute for Research on Collective Goods (as well as some regulators) have argued that the costs to society as a whole of higher capital are very low and that capital requirements should be much higher than they are now.

“These authors are associated with the ‘big equity’ view and are distinguished by the extent to which they see significant increases in capital as being possible without net negative economic impacts.

“Empirical studies have attempted to quantify the costs & benefits of increasing capital requirements, and to determine the optimal capital ratio which has the greatest net benefit. In the more mainstream studies the Reserve Bank has considered so far, a typical optimal ratio is about 14%, but estimates do vary widely (the range is roughly 5-17%). The Reserve Bank will continue to review & assess these studies, but also welcomes the views of submitters on this issue.”

The bank said that, at this early stage of the review, it hadn’t formed a view on the final calibration of capital requirements, but said it was likely to take into account the studies it had seen, as well as empirical evidence.

Links:
Review of the capital adequacy framework for registered banks
Grant Spencer’s March speech

Attribution: Bank release.

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Housing supply the main concern as Reserve Bank holds cashrate

The Reserve Bank held the official cashrate at 1.75% today.

The bank cut its cashrate by 25 basis points in November, the third 25-point cut last year.

Bank governor Graeme Wheeler’s biggest concern was whether housing supply would start to address the imbalance in that market, but he noted that prices had drifted back.

Mr Wheeler said: 

“Macroeconomic indicators in advanced economies have been positive over the past 2 months. However, major challenges remain with ongoing surplus capacity in the global economy and extensive geopolitical uncertainty.

“Global headline inflation has increased, partly due to a rise in commodity prices, although oil prices have fallen more recently. Core inflation has been low & stable. Monetary policy is expected to remain stimulatory, but less so going forward, particularly in the US.

“The trade-weighted exchange rate has fallen 4% since February, partly in response to weaker dairy prices & reduced interest rate differentials. This is an encouraging move, but further depreciation is needed to achieve more balanced growth.

“Quarterly gdp was weaker than expected in the December quarter, but some of this is considered to be due to temporary factors. The growth outlook remains positive, supported by ongoing accommodative monetary policy, strong population growth and high levels of household spending & construction activity. Dairy prices have been volatile in recent auctions and uncertainty remains around future outcomes.

“House price inflation has moderated, and in part reflects loan:value ratio restrictions & tighter lending conditions. It is uncertain whether this moderation will be sustained, given the continued imbalance between supply & demand.

“Headline inflation has returned to the target band as past declines in oil prices dropped out of the annual calculation. Headline CPI will be variable over the next 12 months due to one-off effects from recent food & import price movements, but is expected to return to the midpoint of the target band over the medium term. Longer-term inflation expectations remain well anchored at around 2%.

“Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.”

Attribution: Bank release.

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Wheeler holds cashrate and sees change a long way off

The Reserve Bank left the official cashrate unchanged at 1.75% today, and indicated it would be a long time before change was needed.

Bank governor Graeme Wheeler pitted an improved global outlook against surplus capacity & geopolitical challenges, and once again argued that the $NZ was overvalued.

Mr Wheeler said in his statement on the cashrate decision:

“The recovery in commodity prices and more positive business & consumer sentiment in advanced economies have improved the global outlook. However, major challenges remain, with ongoing surplus capacity in the global economy and rising geopolitical uncertainty.

“Global headline inflation has increased, partly due to rising commodity prices. Global long-term interest rates have increased. Monetary policy is expected to remain stimulatory, but less so going forward, particularly in the US.

“New Zealand’s financial conditions have firmed, with long-term interest rates rising and continued upward pressure on the $NZ exchange rate. The exchange rate remains higher than is sustainable for balanced growth and, together with low global inflation, continues to generate ‘negative inflation’ in the tradeables sector. A decline in the exchange rate is needed.

“Economic growth in New Zealand has increased as expected and is steadily drawing on spare resources. The outlook remains positive, supported by ongoing accommodative monetary policy, strong population growth, increased household spending and rising construction activity. Dairy prices have recovered in recent months, but uncertainty remains around future outcomes.

“Recent moderation in house price inflation is welcome and, in part, reflects loan:value ratio restrictions & higher mortgage rates. It is uncertain whether this moderation will be sustained, given the continued imbalance between supply & demand.

“Headline inflation has returned to the target band as past declines in oil prices dropped out of the annual calculation. Inflation is expected to return to the midpoint of the target band gradually, reflecting the strength of the domestic economy and despite persistent negative tradeables inflation. Longer-term inflation expectations remain well anchored at around 2%.

“Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.”

Links:
Monetary policy statement
Monetary policy statement press conference live-stream at 10am
Graeme Wheeler reading statement

Attribution: Bank release.

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Wheeler cuts cashrate to 1.75%

The Reserve Bank reduced the official cashrate by 25 basis points today to 1.75%.

Bank governor Graeme Wheeler talked of adjusting to uncertainties, but without a timeframe.

In his release explaining the cut, he said: “Significant surplus capacity exists across the global economy despite improved economic indicators in some countries. Global inflation remains weak even though commodity prices have come off their lows. Political uncertainty remains heightened and market volatility is elevated.

“Weak global conditions and low interest rates relative to New Zealand are keeping upward pressure on the New Zealand dollar exchange rate. The exchange rate remains higher than is sustainable for balanced economic growth and, together with low global inflation, continues to generate negative inflation in the tradables sector. A decline in the exchange rate is needed.

“Domestic growth is being supported by strong population growth, construction activity, tourism, and accommodative monetary policy. Recent dairy auctions have been positive, but uncertainty remains around future outcomes. High net immigration is supporting growth in labour supply and limiting wage pressure.

“House price inflation remains excessive and is posing concerns for financial stability. Although house price inflation has moderated in Auckland, it is uncertain whether this will be sustained given the continuing imbalance between supply & demand.

“Headline inflation continues to be held below the target range by ongoing negative tradables inflation. Annual CPI inflation was weak in the September quarter, in part due to lower fuel prices and cuts in ACC levies. Annual inflation is expected to rise from the December quarter, reflecting the policy stimulus to date, the strength of the domestic economy, and reduced drag from tradables inflation.

“Monetary policy will continue to be accommodative. Our current projections & assumptions indicate that policy settings, including today’s easing, will see growth strong enough to have inflation settle near the middle of the target range. Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.”

Link:
Monetary policy statement
Monetary policy statement press conference live-stream

Attribution: Bank release.

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Reserve Bank holds cashrate at 2%

The Reserve Bank kept the official cashrate at 2% today, with nothing unusual to say about prospects.

Here’s how bank governor Graeme Wheeler summed up the world’s economic conditions: “Global growth is below trend despite being supported by unprecedented levels of monetary stimulus. Significant surplus capacity remains across many economies and, along with low commodity prices, is suppressing global inflation. Volatility in global markets has increased in recent weeks, with government bond yields rising and equities coming off their highs. The prospects for global growth & commodity prices remain uncertain. Political uncertainty remains.

“Weak global conditions & low interest rates relative to New Zealand are placing upward pressure on the $NZ exchange rate. The trade-weighted exchange rate is higher than assumed in the August statement. Although this may partly reflect improved export prices, the high exchange rate continues to place pressure on the export & import-competing sectors and, together with low global inflation, is causing negative inflation in the tradables sector. A decline in the exchange rate is needed.

“Second quarter gdp results were consistent with the bank’s growth expectations. Domestic growth is expected to remain supported by strong net immigration, construction activity, tourism & accommodative monetary policy. While dairy prices have firmed since early August, the outlook for the full season remains very uncertain. High net immigration is supporting strong growth in labour supply and limiting wage pressure.

“House price inflation remains excessive, posing concerns for financial stability. There are indications that recent macro-prudential measures & tighter credit conditions in recent weeks are having a moderating influence.

“Headline inflation is being held below the target band by continuing negative tradables inflation. Annual CPI inflation is expected to weaken in the September quarter, reflecting lower fuel prices & cuts in ACC levies. Annual inflation is expected to rise from the December quarter, reflecting the policy stimulus to date, the strength of the domestic economy, reduced drag from tradables inflation and rising non-tradables inflation. Although long-term inflation expectations are well anchored at 2%, the sustained weakness in headline inflation risks further declines in inflation expectations.

“Monetary policy will continue to be accommodative. Our current projections & assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range. We will continue to watch closely the emerging economic data.”

Attribution: Bank release.

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Reserve Bank confirms loan restrictions go nationwide

The Reserve Bank confirmed yesterday that new rules will tighten restrictions on bank lending to residential property buyers throughout New Zealand.

From 1 October, residential property investors will generally need a 40% deposit for a mortgage loan, and owner-occupiers will generally need a 20% deposit. In both cases, banks will still be allowed to make a small proportion of their lending to borrowers with smaller deposits.

The bank confirmed the new rules in its response to submissions to its public consultation about changes to loan:value ratio (LVR) rules that it issued on 19 July. It said it was modifying its proposals in response to public consultation, and through meetings & workshops with banks that are subject to the rules.

Although the new rules take effect only on 1 October, the Reserve Bank said commercial banks had chosen to start following the new limits already.

Existing exemptions to LVR restrictions will continue to apply under the new rules and have been extended to include borrowing for a newly built home, or to do work needed for a residence to comply with new building codes & rental-property standards.

Summary of changes to LVR rules– main changes shown in red – first for borrowers who are owner-occupiers:

Previous: In Auckland, 10% of a bank’s total lending to owner-occupiers can be to borrowers with a deposit less than 20% of the house value. Outside Auckland, 15% of a bank’s total lending can be to borrowers with a deposit less than 20% of the house value

Change: For all of New Zealand, 10% of a bank’s total lending to owner-occupiers can be to borrowers with a deposit less than 20% of the house value

For borrowers who are residential property investors:

Previous: In Auckland, 5% of a bank’s total lending to residential property investors can be to borrowers with a deposit less than 30% of the house value. Outside Auckland, owner-occupiers & residential property investors are treated the same. 15% of a bank’s total lending can be to borrowers with a deposit less than 20% of the house value

Change: For all New Zealand, 5% of a bank’s total lending to residential property investors can be to borrowers with a deposit less than 40% of the house value. In Auckland, borrowers who include an owner-occupied residence in a portfolio of mortgaged houses are allowed to borrow up to 70% of the value of the entire property portfolio. For all New Zealand, borrowers who include an owner-occupied residence in a portfolio of mortgaged houses are allowed to borrow up to 80% of the value of their owner-occupier home and 60% of the value of their investment properties.

Exemptions from the LVR restrictions:

Previous: Loans to borrowers building a new residence are exempt. The exemption doesn’t apply for a borrower buying a residence where construction has progressed beyond ground works. The exemption applies for borrowers who are owner-occupiers and who are residential property investors

Loans to borrowers building a new residence are exempt.

Change: The loan must be for a residence that has been completed within the previous 6 months and it must be bought from the developer. The exemption applies for borrowers who are owner-occupiers and who are residential property investors. The LVR rules do not prescribe the size of a deposit for new residences.

Previous: Loans are exempt if used for remediation after a fire, earthquake, or to bring a residence up to new building codes. The exemption applies for owner-occupiers and for residential property investors

Change: Loans are exempt if used for remediation after a fire, earthquake, to bring a residence up to new building codes, or to comply with new rental property standards (for example, insulation). The exemption applies for owner-occupiers and for residential property investors

Unchanged: Low-deposit borrowers using the Housing NZ Welcome Home Loan scheme to buy their first home are exempt from the LVR rules.

Links:
Loan:valuation ratio restrictions
Summary of submissions & responses

Attribution: Bank release.

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