Reserve Bank Governor Graeme Wheeler says banks will be
subject to restrictions on high loan-to-value ratio (LVR)
housing mortgage loans from October 1.
He said banks would be required to restrict new residential
mortgage lending at LVRs of over 80 per cent to no more than
10 per cent of the dollar value of their new housing lending
He said the LVR restrictions were designed to help slow the
rate of housing-related credit growth and house price
inflation, thereby reducing the risk of a substantial
downward correction in house prices that would damage the
financial sector and the broader economy.
In a speech today at Otago University, Wheeler said housing
played a critical role in the economy but was also a major
source of "value and risk" to the household sector and the
"The Reserve Bank is concerned about the rate at which house
prices are increasing and the potential risks this poses to
the financial system and the broader economy," he said.
"Rapidly increasing house prices increase the likelihood and
the potential impact of a significant fall in house prices at
some point in the future," he said.
"This is particularly the case in a market that is already
widely considered to be over-valued," he said.
Wheeler said house prices are high by international standards
compared to household disposable income and rents.
"Household debt, at 145 per cent of household income, is also
high and, despite dipping during the recession, the
percentage is rising again," he said.
"Furthermore, the growth in house prices is occurring after
only a small correction following the house price boom of
2003-2007 that saw New Zealand house prices increase more
rapidly than in any other OECD country," he said.
Over the past several months the IMF, OECD, and the three
major international rating agencies have pointed to the
economic and financial stability risks associated with New
Zealand's inflated housing market.