Peolple may have loans declined and many small New
Zealand businesses may be unable to raise capital to fund their
businesses under the new loan-to-value ratios being introduced
on October 1.
The New Zealand Bankers Association said yesterday banks
would continue to work to meet the needs of their customers.
Association chief executive Kirk Hope warned people should be
aware they might be declined loans because of the
restrictions imposed by the Reserve Bank.
''It's worth talking to your bank about your individual needs
Most small New Zealand businesses raised investment capital
through their homes. LVR caps might limit their ability to
invest in their businesses, he said.
The lending limits might also make it more difficult for
first-home buyers and home-owners seeking a top-up loan for
''We have reassured the Government that as an industry we
will respond constructively and responsibly to new lending
limits. Our banks are very competitive and will continue to
do all they can to meet the needs of all sectors of their
The real issue was a lack of housing supply in some parts of
the country, not the availability of cheap credit, Mr Kirk
While there were positive moves to deal with the supply
issues, that would take some time to be resolved. Credit
growth, currently around 5%, was not driving that, he said.
Reserve Bank governor Graeme Wheeler announced the much
anticipated LVR restrictions on housing mortgage loans in a
speech at the University of Otago.
Banks would be required to restrict new residential mortgage
lending at LVRs of more than 80% to no more than 10% of the
dollar value of their new housing lending flows.
The bank estimated the 10% speed limit would limit the banks'
high-LVR lending flows to about 15% of their new residential
Housing played a critical role in the economy, representing
nearly three-quarters of household assets. Mortgage credit
accounted for more than half of banking system lending.
The Reserve Bank was concerned about the rate at which house
prices were increasing and the potential risks that posed to
the financial system and the broader economy, he said.
Rapidly increasing house prices increased the likelihood and
the potential impact of a significant fall in house prices.
That was particularly the case in a market that was already
widely considered to be over-valued, Mr Wheeler said.
Kiwibank chief executive Paul Brock was working through the
implications of the announcement but promised to put
first-home buyers at the front of the lending queue.
''When it comes to lending with deposits of less than 20%, we
will give priority to first-home buyers over those who are
buying investment properties.''
Kiwibank was committed to getting people on to the property
ladder, he said.
''We strongly believe the critical issue when assessing a
loan application is the ability to service the debt rather
than the amount of equity a person has in a loan.''
Equity could be built over time and Kiwibank did not want to
push people out of purchasing a family home while they waited
many years to save a much bigger deposit. However, to do
that, the bank would have to set priorities for its lending
and first-home buyers came first, Mr Brock said.
Westpac chief economist Dominick Stephens said Mr Wheeler was
unwilling to lift the official cash rate from 2.5% given a
still benign inflation picture and concerns raising the OCR
could push an already over-valued exchange rate higher.
The hope was the LVR restrictions would slow the housing
market, giving monetary policy more flexibility to hike later
or more slowly.
Westpac's view was the effectiveness of the measures in
cooling the housing market would prove limited. In that
regard, Mr Wheeler noted if the measures were not considered
to be effective, they would be removed.
''We believe the Reserve Bank will not be able to avoid
hiking the OCR by March next year,'' Mr Stephens said.
After the announcement, the share price of ANZ and Westpac
fell and the New Zealand dollar lost nearly US1c in value.