The Reserve Bank is
indicating the removal of restrictions on high loan-to-value
home loans may be gradual rather than a now-you-see-it,
Releasing the bank's six-monthly report on risks to financial
stability this morning, deputy governor Grant Spencer said:
"We consider the earliest date for beginning to remove the
LVR restrictions is likely to be late this year."
The bank was keeping its options open about how and when the
removal of LVRs would be done, but it was quite possible they
could be phased out - most likely by raising the "speed
limit" from 10 per cent of new mortgage lending to some
higher number - rather than removed in one hit, he said.
The bank considers the LVR curbs are having the desired
effect of moderating house price pressures and reducing the
risk of a severe fall in house prices from what it considers
It estimates house price inflation would be running closer to
11 per cent rather than 8.5 per cent without them.
A key condition for their removal is sustained moderation in
house price inflation, it says in the Financial Stability
In particular house prices and household debt should be
rising in line with growth in aggregate household incomes, it
That would suggest a rate around 5 or 6 per cent. Mortgage
credit growth, at least, is already in that zone.
Another indicator that the housing market had "come into
better balance"would be progress towards meeting the physical
shortage of housing, which the bank estimates is around
50,000 in Auckland and Christchurch alone.
The report repeated Spencer's comment last week that the bank
would need to be confident the unexpectedly strong surge in
net immigration - which is largely driven by fewer Kiwis
leaving the country and more returning - would not cause a
resurgence of house price inflation.
Private sector economists do not expect the peak in net
migration to occur until late this year.
Spencer said the main offsetting influence would be the
impact of rising interest interest rates in cooling the
Governor Graeme Wheeler declined to comment on the Labour
Party's planned changes to the bank's mandate and toolkit,
saying it needed to remain apolitical.
- By Brian Fallow of
the New Zealand Herald