The Reserve Bank was too quick in ruling out regional
exemptions for its recently introduced loan-to-value ratios,
Labour finance spokesman David Parker said yesterday.
''We don't accept it was too hard. Sure, it is has a little
complexity but every bank knows where its mortgages are. It's
not that hard. The Reserve Bank was too quick to say its LVRs
would not apply regionally,'' he said in an interview.
Reserve Bank governor Graeme Wheeler yesterday provided a
stern warning about the future of interest rates if the LVRs,
which restrict banks on how they lend on mortgages, failed to
reduce rapidly rising house prices.
In an opinion piece, Mr Wheeler said some people had
suggested LVRs should be applied regionally, especially
around Auckland, or the central bank should exempt buyers of
''We considered both options. Regional restrictions would be
hard to administer and would shift housing pressures outside
wherever the boundary is drawn.''
Exempting low-priced housing would be a recipe for rapid
increases in the cost of such housing, he said.
Broad exemptions to other groups, such as first-home buyers,
would substantially undermine the effectiveness of the
restrictions in reducing house price inflation.
Mr Parker did not accept Mr Wheeler's explanation.
While he supported the Reserve Bank's use of macroprudential
tools, rather than interest rates, to keep inflation low, Mr
Parker said the LVRs were likely to hurt home buyers in
places like Oamaru, which had no housing price pressure.
The Government had forced the Reserve Bank into a corner by
not dealing with the demand and supply issues facing Auckland
and Christchurch, he said.
Some banks were likely to have different mortgage lending
criteria for different parts of the country as they competed
''They can manage their risk. Why can't the Reserve Bank?''Mr
Wheeler said while the Reserve Bank's mandate was to promote
financial stability, there were clear implications for
Over the next two years, interest rates were likely to rise
in order to restrain an expected increase in broader
The expectation was for the official cash rate to rise by 2%
from 2014 to the beginning of 2016, taking it from the
current 2.5% to around 4.5%.
''This could result in interest rates on first mortgages of
7% to 8%. If the loan-to-value speed limit is unable to slow
house price inflation, larger increases in the official cash
rate would be required.''
The central bank was keen to see house price inflation
moderate significantly and, in doing so, reduce the risks to
the financial sector and the broader economy, Mr Wheeler
Limits on low-deposit lending were designed to help achieve
LVR restrictions were expected to give the Reserve Bank more
flexibility as to when and how quickly it had to raise
But the more fundamental solution to reduce pressure in the
housing market lay in addressing the issues around housing
supply, he said.
Auckland real estate firm Barfoot &Thompson managing
director Peter Thompson said the impending introduction of
the LVRS had no measurable impact on Auckland house prices in
Prices continued to rise steadily and modestly in September,
in much the same manner as they had since March, he said.
Both the median and average price were they highest they had
been but the rate of change in September was in keeping with
what had been occurring for the past seven months.
''Month by month variations in sales numbers are common and
if the Reserve Bank's new regime was to have had an impact, I
would have expected more, rather than less, sales in
September, as buyers sought to get in ahead of the new
deposit requirements,'' Mr Thompson said.
Westpac senior economist Michael Gordon said the Barfoot
& Thompson house sales figures provided more evidence of
the Auckland market starting to find some balance.
''We suspect house prices have now risen - and expectations
of further capital gains to come have narrowed - enough to
prompt more homeowners to put their properties on the
Prices were still rising at a rapid clip. The average price
was up 12.3% on a year ago, accelerating from a 9.3% pace in
However, Mr Gordon warned figures from realestate.co.nz
indicated while the stock of homes for sale was increasing in
Auckland, it was still pushing lower in the rest of the
If the trend continued, nationwide house price growth could
start to converge, slowing in Auckland and accelerating in
other parts of the country.
''We are anticipating some temporary softening in the
national housing market as a result of the LVR restrictions
and higher fixed-term mortgage rates.
"These September figures don't reflect that, nor did we
expect them to. We think it will become more apparent from