NZ gov Limits LVR volume exposure

It was actually the RBNZ that stepped in here (yes, they are an arm of government - but it is not "government policy" per se).

For those reading this and thinking wtf?!... it came about as a result of a review of the Policy Targets Agreement (PTA) between the RBNZ and the Govt. It is the PTA that sets out how the RBNZ will do what it does re: monetary policy, etc. Anyway, when they reviewed it about a year ago they expanded the PTA to not only include a CPI target (1-3%) but also "asset price inflation". Most people believe "asset price inflation" is an RBNZ code phrase for "Auckland property prices" and, by all reports, the Auckland market is pretty buoyant atm (at the risk of stating the obvious, the concern is that a hot property market > over leveraged housesholds > financial collapse).

In case any one is wondering - the RBNZ has slighlty wider powers than our RBA - mostly because Australia also has APRA (and NZ has no equivalent).

But the RBA still has enough skin in the game (through its Financial Stability role) to implement something similar in Aust.

Whether they ever would, is another matter....

And people are already talking about how easy it will be to get around the new policy.

And it has also been criticised by some who see it as misdirected policy in that demand side measures (such as trying to cap LVRs) are not the answer to what is fundamentally a supply side issue.
 
Anyone have any stats on what percentage of loans issued are >80% LVR is Australia?

Presumably higher than 10%.

Regards,

Jason
 
Anyone have any stats on what percentage of loans issued are >80% LVR is Australia?

Presumably higher than 10%.

Regards,

Jason

Im sure there is a source ............

Also relevant to a wholistic Point of Health is the median and average LVR though I would have thought

ta
rolf
 
Typical Government intervention that will have unintended consequences. It just means that even less young people are able to afford to purchase properties - since young people have less equity by virtue of their age. I hope they pat themselves on the back.
 
This sort of policy would make the property market almost inaccessible for the younger generations. Both first home buyers and investors would be heavily effected. The knock on effect would be lower capital growth (which is probably one of NZs objectives), but would show no restraint on rental growth, it might even encourage it.

I think there's a good chance that this will only last a year or two before it's removed, but a lot of damage will be done in the meantime and the effects will be long lasting.
 
Maybe room for some innovative loans for applicants with guarantors - making it easier for parents to leverage more of their equity to benefit their kids,
 
Maybe room for some innovative loans for applicants with guarantors - making it easier for parents to leverage more of their equity to benefit their kids,

Yeah but to force FHBs to do this is just horrible. I would never like to involve my parents in guaranteeing my house.
 
Maybe room for some innovative loans for applicants with guarantors - making it easier for parents to leverage more of their equity to benefit their kids,

http://www.afr.com/p/business/finan...s_central_bank_concern_s7o82pJrwpRXYPxYJYyAvN



A mortgage product being pushed by Westpac New Zealand that allows *parents to use equity in their home to help their children buy property has come under scrutiny, as the country’s central bank tries to prevent a risky housing bubble further inflating.
 
Yeah but to force FHBs to do this is just horrible. I would never like to involve my parents in guaranteeing my house.

We've now done it twice with two separate sets of parents.

For me it is really stressful knowing that my financial decisions affect my parents (/in-law).

I couldn't get out of it fast enough the first time, and I can't wait to get out of it this second time.

However, it is massively useful in allowing us to purchase when the time was right despite not having liquid cash or usable equity for a deposit. We are in a much better financial position because this option was available than we would have been if it wasn't.


This reminds me. I need to order a valuation...
 
In my younger years (not admitting to grey or high mileage and Im a passionate Wallabies supporter), there was a product called a second mortgage. It is a small mortgage that partially bridges the LVR requirement for home buyers. Usually a slightly higher % rate, against the property and shorter term, taking the LVR higher than the standard 80%.
 
Im agnostic. I just think its funny trying to interfere into bank policy.

Even further when they meet said policy by using a guarantor the reserve still arent happy.

I mean, how much of an impact is a couple of family guarantees going to have on the overall market? Not everyone is in a position to help their kids into property, and not every first home buyer has parents with equity.

Writing only 10% of your book over 80% LVR is obviously only going to favour those who dont actually need it, the high income, high net worth set.

This rule might have an impact on house prices, it will definately have an impact on wealth inequality, IMHO.
 
Limiting lending is really the only policy, that would increase housing affordability in Australia. Grants, stamp duty concessions, low interest rates do nothing to address the issue.

Buy imposing these restrictions it would suck a lot of demand out of the market and prices would have to come down as a result.

Limiting lending would have a negative effect on property prices. and the share prices of all major banks in Australia.

Initially it will force first home buyers out of the market as they would have to accumulate a much larger deposit. But over time you would find house prices would come down and become more "affordable".

The French have similar limits on how much you can borrow, essentially your mortgage repayments cannot exceed 1/3 of your income.
 
Initially it will force first home buyers out of the market as they would have to accumulate a much larger deposit.

And perhaps make them try a different market? Think one of the (many) unintended consequences is that it's not going to help stop the continued migration flow out of NZ which the NZ National Govt. has been keen to see reversed. Considering, also, how the NZD's been performing lately against the AUD (albeit having dropped slightly on the back of this) …

hmm maybe should set up shop outside airport arrivals.
 
APRA fires the first shot?

http://www.apra.gov.au/Insight/Documents/Insight%20Issue%202%202013_Web.pdf

ADI = Authorised deposit-taking institution

Slow credit growth increases the pressure on ADIs to compete for business on price and - of concern to APRA - by relaxing lending standards: this can be through increasing risk appetite, relaxing targets and limits, adjusting lending policies and approving more loans as exceptions to these policies. One indicator that APRA monitors closely is the value of new lending at high loan-to-valuation ratios (LVRs). Since 2010, there has been an increase in new lending at LVRs above 90 per cent, particularly in the recent quarter.

A sustained low interest rate environment poses further risks to lending standards. It is important for ADIs to ensure that new borrowers are able to service debt and afford higher repayments when interest rates rise from current record low levels. APRA expects ADIs' serviceability assessments to test borrowers' capacity to meet higher repayments through adequate interest rate buffers and floors, applied to new and existing loan commitments.

(...) Recent international experience indicates that a prolonged period of low interest rates can lead to rising household leverage and housing market pressures, with potential flow-on impacts on the credit quality of housing loan portfolios. This reinforces the importance of ADIs adopting sustainable lending growth targets and prudent lending strategies, including in relation to high LVR lending and loan serviceability standards. APRA is currently developing a Prudential Practice Guide, which will provide guidance to the industry on good practice in housing credit risk management.

IMO this is a clear sign there will be control of housing credit in one form or another.

From the same document:

Elements of a prudent approach to debt serviceability
- Clearly documented policies and procedures for evaluating loan serviceability, subject to effective governance arrangements and board oversight.
- A set of consistent serviceability criteria across all of an ADI's mortgage products.
- Application of an interest rate buffer to stress new and existing loan commitments, which is regularly reviewed in relation to the interest rate cycle and key economic indicators.
- Inclusion of an interest rate floor in serviceability assessments, based on the average mortgage interest rate over an appropriately long time period, being at least one cycle in interest rates.
- Use of a borrower's declared living expenses as a more representative measure of their actual living expenses than the HEM or HPI indices.
- Where the HEM or HPI indices are used, the addition of a margin to the relevant index linked to a borrower's income, and regular updating of these indices.
- Formal procedures to verify a potential borrower's existing debt commitments and to identify possible undeclared debt commitments.
(...)
 
APRA fires the first shot?

http://www.apra.gov.au/Insight/Documents/Insight%20Issue%202%202013_Web.pdf

ADI = Authorised deposit-taking institution



IMO this is a clear sign there will be control of housing credit in one form or another.

From the same document:

They suggest having all ADI's with the same serviceability rules. What a joke its not a friggin communist state. Suppose we should assess loans at 17% as well. Keep the risk managers in their box where they belong!!
 
Typical Government intervention that will have unintended consequences. It just means that even less young people are able to afford to purchase properties - since young people have less equity by virtue of their age. I hope they pat themselves on the back.

I agree with this. All this will achieve is preventing those without big deposits or wealthy parents from buying.
 
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