Auckland higher deposits required

The New Zealand Reserve Bank announced yesterday that investors buying properties in Auckland city will require a 30% deposit if a mortgage is wanted from a commercial bank (eg ANZ, Westpac etc). A 20% deposit was introduced last year nationwide.

This is scheduled to apply from October this year.

Background to this is very high price growth in Auckland and slow to stagnant price growth in most areas of the country.

Many see a bubble developing in the Auckland property market.

Many factors appear to be coming together to reinforce price growth.
High and continuing immigration, good economic times by world standards, a shortage of housing, low rates of new building, and a self reinforcing belief in more price rises to come.

This measure has been put in place to protect the commercial banks in case of a major fall in property values.

Part of the Reserve Banks mandate from the Government is the protection of the ?Banking System?.

Part B of this is a wide spread campaign by some political parties, media, and commentators to paint property investors in a bad light and responsible for much of societies ills.

This move could be seen as the independent Reserve Bank trying to slow price increases without the Government action that may not be popular with electors.

Interesting to see how this pans out in practice.
Australian Governments have adopted many ideas from New Zealand in the past.
GST, PAYG (PAYE in NZ).

Do you ever see the day Sydney for example could have a different set of mandated rules for lending from the rest of NSW?
 
Redom - who is very knowledgeable about this sort of thing - did an analysis on this and believes it's unlikely but you never know.
 
Unlikely, but we sort of see this sort of "restriction" often.
Eg: commercial needs 30% , under 50m2 is difficult, retirement villages are difficult, rural property needs more deposit.....the list goes on and on and on.....

So it makes sense that the banks that could conceivably have restrictions by postcode.
 
This sort of thing already goes on in Australia - some banks already require higher deposits in some mining towns and also in the larger centres of Mackay and Gladstone.
 
Interesting!
Hard to know whether it could happen or not - NZ looks like they are taking the bull by the horns and addressing these kind of issues without beating around the bush. Very interesting to see how this goes.

Can you provide some background to the level of price growth in Auckland? Just a ballpark figure?
 
Interesting!
Hard to know whether it could happen or not - NZ looks like they are taking the bull by the horns and addressing these kind of issues without beating around the bush. Very interesting to see how this goes.

Can you provide some background to the level of price growth in Auckland? Just a ballpark figure?

Auckland region median price growth in the year to end of March 2015 was 13%.
 
New Zealand also has differing deposit requirements and length of loan term for commercial property and some non-mainstream residential lending.

The interesting difference about these restrictions are that they are being imposed on the commercial banks by the Reserve Bank, and not from the banks own risk profile of lenders, properties or locations.

The rules apply only to one city (Auckland) and one group of buyers (investors)

Auckland?s recent price growth differs with how each index is calculated but in the region of 16% in the last 12 months and 47% in the last 3 years.
 
Very interesting - thanks for sharing.

To me this type of policy adopted across the tasman only increases the chances of it being used temporarily in Sydney.

Its 'out of culture' for Aussie policymakers to adopt this type of policy (more often adopted in asia). Its very interventionist and distorts the allocation of resources significantly. Very unusual for our regulators to do this based on past behaviour.

In saying that, if the need arises, i wouldn't put it past them. Sydney is an isolated hot market in Aussie thats causing much of the financial stability risks that are bubbling. It seems like a very targeted tool to adjust the issue, and the current set of circumstances fits this type of policy pretty well.

From my time as a financial sector regulator (nearer to the beginning of the boom), we had surface discussions about what we could do about Sydney in isolation. Geographic based macro prudential policy measures came up in the discussion is an option, but was pretty quickly put to the side given the negative spillover consequences.

Nonetheless, it surprised me that it was a serious part of the discussion, and it would surprise me further still if it got implemented here.

Cheers,
Redom
 
ASIC and APRA are in at the major banks pretty much every day in a way never seen before in Australia. They are putting lots of pressure on them especially on investment property lending.

Several lenders are saying it is difficult to operate with " ASIC and APRA up our a... every day"

Some of the majors have told me they expect LVR'S to decrease and increase rates to increase for investors.

Interesting for brokers ASIC went into a major bank last week and asked for 100 owner occupied interest only files to audit, most files were between 2-4 years old. I know a broker who had a file audited and there was no issue after he explained the reason for it, he has decided on every interest only owner occ loan to just have a cut and paste template to add into the loan application (rather then on his compliance documents) that can be adjusted depending on the client to ensure if audited again the comments are already on the file ASIC pick up from the bank.

CBA are also considering making their assessment rate a flat 8% rather than 7.25% less discount, that will kill serviciability for many.

Its going to get harder and harder but its all part of a cycle, it will ease up again later on, it always does.

Good luck
 
Geographic based macro prudential policy measures came up in the discussion is an option, but was pretty quickly put to the side given the negative spillover consequences.

I guess at that point it was mostly theoretical? I think in 6-12 months if Auckland is seen as a successful test case, it'll add a lot of weight to the idea...
 
I guess at that point it was mostly theoretical? I think in 6-12 months if Auckland is seen as a successful test case, it'll add a lot of weight to the idea...

Yep it was all theoretical at that point - but did give some foresight as to what may happen (and is happening now!). Aussie regulator way of dealing with financial system risk build up is a bit different to other countries.

1. Wait and see.
2. Collect data.
3. Quite word.
4. Harsh warning.
5. Force some adjustment.
6. Impose penalties on individual banks.

If this fails,

7. Harsher penalties and forced adjustments.
8. Hard restrictions across the market (macropru)

Asian countries have typically used no8 much quicker!
 
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