It's about as surprising as a frustrated Monopoly player throwing the board up in the air. Yes, banks may be asked to tighten up on housing loans to those who aren't earning enough.
The Reserve Bank indicates it is seeking Government permission to impose debt-to-income lending limits to rein in house prices – if and when that's required.
Bank Governor Adrian Orr has written to Finance Minister Grant Robertson with advice on the lending limits and interest-only mortgages. Robertson is to reply next week, at the earliest.
Yesterday, Orr gave his strongest steer about what he is seeking. He said loan-to-value restrictions and tax changes were already helping dampening house price growth by restricting investor access.
"We ourselves still think some type of debt servicing restriction tool, for us, is an effective and efficient tool," he said. "If the current asset price of houses were declining, that doesn't mean there wouldn't be future events."
He emphasised: "That was an 'if'."
For the Bank to seek permission to use the new debt limits would be about as surprising as a Monopoly player throwing the playing board up in the air.
"We're shouting from the pulpit, think in a long-term sense when you're considering buying. Don't get excited by the current mortgage rate. Think about what mortgage rates might look like, on average, through time." – Adrian Orr, Reserve Bank
This is a very, very frustrating market for those who aren't winning in it, and if young and low-income NZers struggle to buy or rent homes then that jeopardises the whole game. That's why the Bank sees house prices as a risk to the financial stability of banks and the economy.
Orr was speaking after the Bank's latest Monetary Policy Statement – its most hawkish since the advent of Covid-19. The indication of interest rate hikes in the second half of next year pumped up the NZ dollar by almost a cent against the US.
It would make NZ one of the first countries in the world to retreat from economic stimulus by raising interest rates.
The Reserve Bank's longer term house price forecasts show price rises plummeting from today, bottoming out at zero, then plateauing beneath 2 percent.
That drop-off and flattening is broadly in line with the forecast published by the Treasury last week, in the Budget Economic and Financial Update.
Orr acknowledged the Reserve Bank's low interest rates had continued to put upward pressure on housing prices for the past year: "We are encouraging investment, we are encouraging spending, low interest rates mean that mortgages are affordable."
All the heavy lifting in managing price rises down had been done by the Government, banks and builders. "While the low interest rate environment has supported house prices, other factors such as recent tax changes, the growing supply of housing, and lending restrictions, are providing offsetting pressures," Orr said.
"Through time, if the interest rates rise as in this projection then yes, that would be taking some of that stimulus out of the housing market and we would be putting downward pressure on spending. That's the natural swings and roundabouts of what we do.
"Interest rates are very low, and certainly below what we would consider a neutral rate globally." – Adrian Orr
"That is also why we're shouting from the pulpit, think in a long-term sense when you're considering buying. Don't get excited by the current mortgage rate. Think about what mortgage rates might look like, on average, through time, and how does that feel for you as a buyer or investor in housing?
"Because globally, interest rates are very low, and certainly below what we would consider a neutral rate globally."
This would not be the first time the Reserve Bank has sought Government permission to impose debt-to-income lending limits. Previously, it asked former finance minister Bill English – and was refused permission. The concern is that they might impact on first homebuyers more than they do on property investors.
The Bank acknowledges that, but suggests it could use "speed limit" allowances for mortgage lenders to lend a restricted amount to homebuyers on lower incomes.
"It’s important that any potential restrictions do not disproportionately affect first-home buyers and low-income borrowers." – Grant Robertson, Finance Minister
Earlier this year, the Finance Minister asked for further advice on how the Bank might implement tools like debt-to-income ratios. "I have made clear that in principle I would want these to apply only to investors," he said. "It’s important that any potential restrictions do not disproportionately affect first-home buyers and low-income borrowers."
Yesterday, Grant Robertson ruled out any preemptive response to the Reserve Bank letter. "The advice received is for the Minister to consider and respond to," a spokesperson said. "Understandably, he wants to take the appropriate time to do that.
