Reserve Bank backs down on loan rules
"This decision is going to put a lot of pressure on an unsavoury OCR hike next year."Featured comment
The Reserve Bank has tweaked its loan-to-value policy on residential lending to exempt new construction.
It follows weeks of lobbying from the construction industry warning of falling work levels, job losses and soaring house prices exacerbated by low supply.
New residential construction loans will now be exempt from the loan-to-value restrictions introduced from 1 October, Reserve Bank deputy governor Grant Spencer says.
“The Reserve Bank has recently consulted with the building industry and banks on the impact of LVR restrictions on residential construction activity,” Mr Spencer says.
“While high LVR construction lending is only about 1% of total residential lending, it finances about 12% of residential building activity.
“This exemption means that low deposit lending will fall outside the 10% speed limit if it is financing the construction of a new house or apartment.”
“This exemption will help to support the supply of new housing and, in doing so, reduce some of the pressure arising from excess demand in the New Zealand housing market.”
The New Zealand Bankers’ Association has today welcomed the Reserve Bank’s move to exempt new residential construction loans from the loan-to-value (LVR) restrictions it introduced on 1 October.
“We’ve said all along that supply has always been the issue in parts of the housing market, not the availability of cheap credit,” said New Zealand Banker’s Association chief executive Kirk Hope.
“We agree that this move will help to support the supply of new housing and reduce pressure on demand in the New Zealand housing market. We support any moves to address the supply issue.
“The Reserve Bank’s response shows flexibility and an ability to respond to industry concerns. We applaud them for taking on board the feedback provided by banks and the construction industry.
“This move complements the government’s efforts to address the housing supply issue in Auckland,” Hope said.