Philip Macalister: Bank must take care not to hurt those who need help
5:30 AM Sunday Dec 9, 2012
LVR restrictions will likely it first-home buyers harder than other borrowers. Photo / Jeff Brass
I like my toolbox. It has plenty of useful tools such as screwdrivers, spanners and hammers, to name just a few. We learned this week from the Monetary Policy Statement that the Reserve Bank has a few new tools in its box to fix the economy when things get heated.
I may have woodworking or metalwork tools but the Reserve Bank governor has "macro-prudential" tools.
Not sure if this sounds like something from a sci-fi book or from a Terminator movie but they sure sound impressive. The one which has been talked up by commentators is around putting limits on loan-to-valuation ratios with bank lending.
These commentators think that property investors are evil and totally responsible for pushing up house prices.
This couldn't be further from the truth. A survey the NZ Property Investor Magazine has just conducted reveals that property investors are actually pretty conservative with their loan-to-valuation ratios.
Just 21 per cent had LVRs over 80 per cent. More than half had LVRs sitting between 50 per cent and 80 per cent.
In anyone's view these are pretty conservative ratios.
The people using high LVR lending tend to be first home-buyers. It is this market that the banks are actively chasing at present.
There is criticism that banks have now started doing 100 per cent deals. I suspect you could count the number of deals like this on a couple of hands and that banks would only do such a deal if the borrower had lots of assets and excellent loan servicing ability.
Putting LVR restrictions on lending is no silver bullet to dealing with a housing bubble. It is one tool which may help, but it is likely to hit first-home buyers harder than other borrowers.
Reserve Bank governor Graeme Wheeler has some other new tools and it will be interesting to see if they work. He has counter-cyclical capital buffers and core funding ratios and capital risk weighting in his box.
And perhaps even more interesting is his comment that next time there is an asset bubble, these tools are likely to be deployed before changes to monetary policy, such as hiking the interest rate.
It looks like Wheeler's tools are real tradesmen ones, not the home handyman type in my toolbox.
If there are too many houses at high prices that people can't afford due to an imposed LVR, then house prices will natural fall to compensate for the over supply. The other side to the coin is that the rental market will become more active with higher rentals as a result.
One idea I would like to see is that the bank has to share the risk along with the borrower. I.e, if the bank loans 95% of the purchase price, then they take 95% of the losses in the event that the house gets sold for less than the original purchase price. Even if it was done on mortgagee sales only, it might bring back some fiscal responsibility to the banks.
When are these live in their own heads finance idiots who are deliberately away in la la land going to wake up educate themselves about this global revolution in low cost quick efficient at how or factory make any product for sale digital manufacturing. When.
They got plenty of money to lend for unproductive stuff like houses etc or for cars trucks, diggers, buldozers etc but not for a machine that can make a thousand different product to sell via the net to a global market of billions.
Obviously we have some real bright sparks now in control of the funds in this country and we can look forwards a country to be left behind in the technology advancement game while the world moves on. The people who set these policies should be beaten to with in an inch of their lives for the feign ignorance and sheer arrogance of walking around with their eye closed and brains switched off.