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Home loan restrictions are biting, Reserve Bank says

Banks reduced the number of high debt mortgages they signed up in October, the first month of new Reserve Bank of New Zealand lending restrictions.

High loan-to-value ratio mortgage lending fell to 11.7 percent of total new mortgage lending in October, from 25.5 percent in September and around 30 percent earlier in the year, the Reserve Bank said, citing a new monthly survey which tracks the figures.

Under new rules introduced Oct. 1, banks must reduce lending at LVRs above 80 percent to no more than 10 percent of their total new mortgage lending over the next six months.

The central bank introduced the lending restrictions in an attempt to cool rising house prices, buoyed by demand from earthquake damaged Christchurch and an under-supplied Auckland market, on concern about financial stability. It is too early to assess what impact the lending restrictions are having on housing market activity, the bank said today.

"The reduction in high-LVR lending will help to reduce the risks of a sharp correction in house prices in an already overvalued housing market," RBNZ deputy governor Grant Spencer said in a statement. "The banks are having to manage a pipeline of loans that were pre-approved prior to the LVR restrictions taking effect. The share of high-LVR lending is expected to fall further over the coming months as these pre-approvals run down."

The bank has said that should the lending restrictions prove successful in curbing the bubbling housing market, it will lessen the extent of interest rate hikes it plans for next year.

The figures exclude Housing New Zealand's Welcome Home Loans, the refinancing of existing high-LVR loans, bridging finance or the transfer of existing high-LVR loans between properties.


Comments and questions

Yep, definitely biting in the provinces. Guess everyone will move to Auckland now. Wheeler is incredibly quiet on how he proposes to counteract cheap Asian money buying up central Auckland.

When the property bubble in Auckland bursts, watch all the "hot" Chinese money go back overseas. Their money moves from country to country to where they percieve they will get the best return.
A large number of rental houses will suddenly come onto the market exacerbating the problem.

Most of the Chinese seen grabbing properties during the auctions are actually incoming migrants or residents living here in the country.

Anon, don't just follow the flock of dumb sheep.

Many, many of the Chinese have lived here for many years, perhaps even contributed to the $2bn intl student industry, qualified for PR, got married and their parents are paying their deposits on houses then the parents become grandparents and move here after to live with them and raise the grandkids. I see it every day in what I am doing.