Pressures in the housing market are easing, the Reserve
Bank says. Photo ODT
The Reserve Bank's curbs on bank lending to low deposit
borrowers could be removed by the end of the year.
In a speech released today, deputy governor Grant Spencer
said pressures in the housing market were easing gradually.
"The volume of house sales has dropped considerably across
the country, other than in Canterbury, and the slowdown in
volume has also been reflected in prices."
The Reserve Bank introduced loan to value restrictions (LVR)
on banks in October last year limiting the lending to those
with less than a 20 per cent deposit to 10 per cent of new
Spencer said without those restrictions annual house price
inflation might be 2.5 per cent higher.
Housing supply conditions had also started to improve and in
Auckland progress was being made in freeing up the supply of
buildable land and improving the consent process.
The Government announced another round of land in Auckland to
be targeted for building houses on this week.
Spencer said the Reserve Bank believed the lending
restrictions were achieving their purpose.
"The financial system is less vulnerable to an adverse
housing shock and banks are now less exposed to potential
credit losses as the interest rate cycle turns upwards."
At this stage he said the earliest date for beginning to
remove them was likely to be late in the year. But warned
that before it removed the restrictions the bank wanted to be
confident that the housing market was responding to interest
rate increases and that immigration pressures would not cause
a resurgence of house price pressures.
Dominick Stephens, chief economist for Westpac, said it had
been speculating on the future of the loan restrictions and
today's speech had given a very direct answer to questions
about the limits.
Stephens said it was possible the timetable for restrictions
could change if the housing market took off again.
"But in our view that is unlikely to happen, with interest
rates rising as they are."
Stephens said Spencer's speech also indicated the Reserve
Bank was looking at a less steep increase in the official
cash rate than it had indicated in March due to the high
Spencer said floating mortgages could be 7 to 8 per cent in
two years' time, closer to their average of the past 20
Some economists had predicted floating rates would be that
high by the end of this year.
Spencer said the extent and timing of interest rate increases
would depend on a number of uncertain variables, in
particular the exchange rate and housing market pressures.
- Tamsyn Parker of the New Zealand Herald