Deputy Reserve Bank Governor Grant Spencer. Photo / Jason Oxenham
Deputy Reserve Bank Governor Grant Spencer. Photo / Jason Oxenham
For a decade now, Grant Spencer - who takes over as Reserve Bank governor from September 26 - has been the guy we pay to worry about how much we owe.
As deputy governor and head of financial stability, Spencer leads the team charged with ensuring our banking system is not taking on too much risk and threatening the economy.
It doesn't get the intense media coverage that we give to monetary policy and interest rate decisions, which have a more immediate impact on our back pockets.
But the stakes are arguably higher. When financial stability gets interesting, it also gets frightening - as we saw in the 2008 financial crisis.
A year ago, when the Business Herald tallied the country's gross debt levels for the Nation of Debt series, things were starting to get precarious.
The red hot housing market was accelerating the rate of mortgage borrowing to record levels and a dairy downturn was threatening to put the squeeze on heavily indebted farmers.
Nominally, gross national debt has continued to rise in the past year - topping half a trillion dollars - but it's fair to say Spencer is feeling more relaxed these days.
"In housing, credit growth and household debt, things have definitely improved," he says when we sit done for a chat the day after the release of the bank's Financial Stability Report.
Crucially, the rate of increase in our household debt levels has started to drop - largely because the Auckland housing market has finally cooled.
"We think the LVRs [loan to value ratios] have been an important part of that," he says, referring to the latest round of lending restrictions which, from last October, required investors to hold deposits of at least 40 per cent.
Similar restrictions were introduced in 2013 and 2015, but had only limited success in slowing the market.
This time the effect has been more pronounced, Spencer says, because we're also seeing a "more risk averse approach to credit expansion on the part of the banks".
"Part of that is nervousness about the housing sector, but also the funding and reduced supply of deposits that they've got coming through the door," he says.
"They are swimming in the same direction now as the policy, which wasn't necessarily the case in the earlier LVR rounds."
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So there is a positive story there in terms of overall credit growth easing, he says.
"Then you say: how is that helping in terms of overall debt burden on the household sector?"
The overall growth in housing debt has been about 8 per cent in the past year.
Nominal income growth is lower than that, so over the year, that means that household debt relative to income has increased to about 168 per cent, Spencer says. "We'd like to see that trend down rather than up."
But if you look at credit growth over just the past six months, it's probably more like 5 per cent per annum, he notes. That's starting to come more into line with income growth.
In Auckland at least, double-digit growth in house prices petered out around October last year.
That has resulted in the growth rate of mortgage lending falling for each of the past four months.
As long as the housing market stays flat, it should continue to cool.
"That's positive, but the debt ratios are still pretty high and the household sector is still vulnerable to higher interest rates and/or reduced incomes," says Spencer.
If the housing market picks up again in a few months - as many in the industry predict - then the Reserve Bank may have to look at other measures.
It is still working with the Government on adding debt-to-income (DTI) restrictions to its toolbox.
Spencer wants to be very clear that they don't see the need to deploy those restrictions if the current trend continues.
But the bank wants to be ready. In a document released last week, the RBNZ said setting a limit on mortgages of more than five times income would be appropriate.
Its data showed 27 per cent of lending is at a debt-to-income ratio of six times or more, and a further 13 per cent at a ratio of between five and six times income.
Banks, in the history of commerce and civilisation, have developed for a reason: they facilitated spurts of growth as a result of more efficient financial intermediation than you get if you're just trading with your family or neighbour.
Reserve Bank stress tests have highlighted the risks to the most indebted homeowners if mortgage rates rise significantly.
In its Financial Stability Report, it estimated that about 4 per cent of all borrowers, and 5 per cent of recent borrowers, could not meet their essential expenses and would face severe stress if mortgage rates were 7 per cent.