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New Zealand’s central bank has decided to maintain its existing mortgage loan-to-value ratio rules after reviewing housing market conditions and financial stability risks. The Reserve Bank of New Zealand’s Financial Policy Committee assessed house prices, the financial pressure on existing borrowers, recent lending activity and the resilience of the banking system before keeping the rules unchanged. Under the current settings, banks can allocate up to 25% of new lending to owner-occupiers with loan-to-value ratios above 80%, while up to 10% of new investor lending can have ratios above 70%. The decision keeps borrowing conditions unchanged for now.
New Zealand’s central bank will keep its current mortgage lending restrictions in place after its annual review of macroprudential policy found that the existing settings remain appropriate.
The Reserve Bank of New Zealand’s Financial Policy Committee considered house price movements, the level of financial strain among existing borrowers and the resilience of the banking system before deciding not to change the loan-to-value ratio rules. The review also considered the risk profile of recent lending and the pace of mortgage credit growth.
Under the rules that have been in place since December last year, banks can have up to 25% of new owner-occupier lending at loan-to-value ratios above 80%. For investors, up to 10% of new lending can have loan-to-value ratios above 70%. The restrictions are designed to limit the amount of higher-risk lending in the banking system and reduce banks’ exposure to a sharp correction in house prices.
Reserve Bank Assistant Governor for Financial Stability Angus McGregor said the settings are reviewed annually to ensure they remain suitable for housing market conditions and financial stability risks. The central bank has previously adjusted the rules as housing and lending conditions changed, including increasing the allowance for higher loan-to-value owner-occupier lending from 20% to 25% from December last year.
The decision means borrowers with smaller deposits will continue to face limits on the share of lending banks can provide under the higher loan-to-value categories. At the same time, the unchanged settings indicate that the central bank does not currently see enough change in housing or banking risks to warrant tightening or easing the restrictions.
The move comes as New Zealand’s housing market remains relatively subdued. The central bank has said house prices are within its estimates of sustainable levels, while mortgage lending growth remains moderate and the share of higher-risk lending is low.
For the property market, keeping the rules unchanged provides more certainty for banks and borrowers, while maintaining safeguards around higher-risk mortgages. The settings can be reviewed again as housing prices, lending activity and household financial conditions change.
Source Reuters
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