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RBNZ looks to new lending restrictions

NZN 11/05/2016

New lending restrictions to prevent people borrowing too much relative to their income are on the cards, the Reserve Bank of New Zealand's two most senior officials say.

Governor Graeme Wheeler and deputy governor Grant Spencer made the comments at a media conference after the release of the bank's six-monthly financial stability report, which highlighted concern about the resumption of unsustainably high house price inflation nationwide, and especially in Auckland.

The report stopped short of imposing new lending restrictions and the governors used a press conference to flesh out their thinking on possible additions to the country's growing array of macro-prudential controls.

They stressed there is no timetable for implementation of such a measure, which would require agreement from Finance Minister Bill English for inclusion in the government's memorandum of understanding with the central bank.

While loan-to-income ratios lending restrictions were one of "several things in the toolkit", it was not among the four macro-prudential options included in the current MOU and "not in a state of readiness" for implementation.

Asked whether the bank was more likely to extend existing loan to valuation ratios (LVRs) than to pursue loan-to-income ratios (LIRs), Spencer said: "I wouldn't say that. No."

Wheeler said the bank was considering further macro-prudential measures to try to curb house price growth, but said: "we need to do more analysis and have discussions with the finance minister."

Mr English said he didn't have a "strong view" about the effectiveness of loan-to-income ratios, but acknowledged the issue was still to be discussed with the central bank.

Prime Minister John Key wouldn't rule out potentially adopting any recommendations from the Reserve Bank, or allowing it to pursue such measures.

Labour leader Andrew Little said any steps the Reserve Bank takes must not shut people, particularly first home buyers, out of the market.

The bank has only been collecting LIR ratio information from the country's largest banks and only since mid-2015. Smaller banks are now likely to be included in ongoing monitoring, Spencer said.

It was "definitely a relevant area" for further work. Restrictions could be targeted just at Auckland or at the whole country, but the bank would prefer a "simple" approach.

"You would have to think about the impact on first-home buyers", especially in very expensive locations like Auckland, said Spencer. However, highly leveraged LIR lending was "considerably higher for investors" as a proportion of total home mortgage lending.

"It would probably impact investors more than first-home buyers. You could differentiate between investors and owner-occupiers. I'm not saying you would but saying what the possibilities are," said Spencer, who is head of financial stability at the RBNZ.

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