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Financing to tighten for housing investors

NZ NewswireNZ Newswire 18/07/2016

The Reserve Bank plans to roll-out tougher lending restrictions across the nation from September in an effort to lessen the risk the country's rapid house price growth poses to the wider financial system.

The central bank wants to cap bank lending to property investors with a deposit of less than 40 per cent at 5 per cent, according to a consultation paper released on Tuesday.

It also wants to restore the 10 per cent limit for owner-occupiers wanting to take out a mortgage with a deposit of less than 20 per cent.

The property investor loan-to-value ratio restriction is an extension of the existing restraint in Auckland, which has a lower deposit threshold of 30 per cent.

Existing exemptions, such as loans for new dwellings, would stay in place.

"LVR restrictions to date have improved the resilience of bank balance sheets by reducing banks' exposure to riskier mortgages," governor Graeme Wheeler said.

"This policy initiative is intended to further improve the resilience of bank balance sheets, and it will assist in restraining credit and housing demand."

Earlier this month the Reserve Bank signalled new restrictions could be in place before the end of the year.

The bank will give an unscheduled economic update on Thursday, which investors are predicting will see Mr Wheeler try to talk the kiwi down and perhaps pave the way for a rate cut next month.

The kiwi dollar dropped to US75.52 cents from US76.03c immediately before Tuesday's release.

The central bank anticipates the extension of the LVR restrictions will reduce house price inflation by 2 to 5 per cent, and cut sales by 5 to 15 per cent.

The Reserve Bank is still considering introducing a debt-to-income (DTI) ratio, which the consultation paper says would be complementary to the LVR restriction.

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