03/08/2021
You guys really need to read this. Its a bit out of left field and a bit OTT. Credit to David Windler on this post.
The Reserve Bank has signed off on a Memorandum of Understanding with the Govt on macro-prudential tools that brings into their control constraints around debt-servicing. Debt to income ratios have been on the radar for a while but now they are adding to the mixer the ability to bring in interest rate floors. This is a measure whereby the RBNZ will be able to instruct banks as to the minimum test servicing rate allowable.
Furthermore they are entering into consultation around a further increase to the amount of high LVR lending allowable. Currently sitting at 20% of all new loans, the proposal is to halve that to 10% and introduce it from October 1st 2021.
Lets tackle the second one first.
For years now attention (quite rightly) has been on the plight of the FHB and how hard it is for them to purchase. Well this move does heaps to help that doesnt it? The last time banks were at 10% supply of high LVR lending, it was really tough sometimes to place a deal. Faced with this, banks moved to provide supply to only their own clients. On many occasions the tap was turned off completely for pre-approvals making it almost impossible for FHBs to attend auctions. Good prospective borrowers were put through the ringer in their efforts to get the lending they needed to buy their first home.
How about interest rate floors? Well too late guys. Bank test rates have been conservative IMO for years and as rates dropped, banks were smart enough to only push through minor drops in their test rates. In the main bank test rates are connected and/or relative to floating or the two year rate and as these are destined to rise in the near to medium future then test rates will likely edge up with them.
The RBNZ media release comments around their concern for purchasers of the last 12 months, that if prices drop they will possibly be in a negative equity position. Moves like this will likely fulfill this prophecy.
Personally, I think that the RBNZ has succumbed to the pressures of a government that has and will continue to take every opportunity to centralise power and control. The signing of the MoU between Govt and the RBNZ has significantly dented the independence of the RBNZ. Neither body has any idea that for around the last 5 years getting lending has not been easy task, mortgages have not been given away to every Tom, Dick and Harry. As someone who was in the industry through the GFC, I know what ordinary lending looks like.
The Reserve Bank of New Zealand – Te Pūtea Matua – will soon begin consulting on ways to tighten mortgage lending standards, Deputy Governor and General Manager for Financial Stability Geoff Bascand says.
