Reserve Bank deputy governor Christian Hawkesby. Photo / Mark Mitchell
Economists say Reserve Bank changes to mortgage lending restrictions could have an effect on the market after the middle of the year with a slight price lift.
ANZ economists Sharon Zollner and Andre Castaing said prices could rise in this year’s second half as a result of a slight easing in loan to value ratios.
In further moves to protect the financial system’s stability, the Reserve Bank wants to limit the amount banks can lend to borrowers compared with their incomes. It proposes to tell banks that no more than 20 per cent of the value of the mortgages they issue owner-occupiers can go to borrowers seeking debt worth more than six times their gross annual incomes. The consultation phase closes on March 12.
The ANZ economists said that could have an effect.
“A slight easing in loan-to-value restrictions may provide modest support to house prices over the second half of 2024, given the debt-to-income limits are unlikely to be binding for some time. However, the Reserve Bank is not intending to have a big impact on credit conditions overall with these changes and we expect impacts to be small,” they said in research out today.
Loan-to-value restrictions had been around for nearly a decade, but the new element announced yesterday was the debt-to-income ratios, they noted.
That would further restrict new bank lending based on a borrower’s debt as a multiple of their income.
Loan-to-value and debt-to-income lending restrictions had overlapping impacts on credit availability. How binding they were at any given time would depend not only on their calibration but on interest rates, house price growth and other factors affecting housing credit demand, the economists said.
ANZ is forecasting a fairly subdued housing market this year, with prices picked to rise nationally only 4 per cent. But it forecasts landlords to buy more as the year progresses and interest rates to fall. Interest deductibility for landlords is set to be phased back in by the coalition government so that, too, could help push the market up more.
High interest rates could take more of a toll on borrowers’ abilities to load up with debt than the new debt-to-income ratios, the research said.
Westpac chief economist Kelly Eckhold said the proposal out yesterday would not be restrictive, given recent lending trends and should have little housing market impact. This would change if house prices were to increase significantly compared with household incomes in coming years, or if interest rates were to fall sharply, he noted.
The Reserve Bank had published data showing banks were lending less than 10 per cent of new loans to households of a debt-to-income greater than six and investors of a debt-to-income ratio greater than seven, “hence, we don’t anticipate much immediate impact on housing lending trends”, Eckhold said in research out yesterday.
But that could change if house prices rose significantly compared with incomes over the next couple of years.
Westpac forecasts 8 per cent house price rises this year and 6 per cent next year, versus about 5 per cent and 3 per cent growth in nominal wages during those two years.
RBNZ deputy governor Christian Hawkesby said yesterday it was important to have policies in place to manage boom-bust credit cycles.
He said DTI and LVR rules complemented each other.
“While the LVR tool is aimed at improving the resilience of the financial system by reducing potential losses when households default on their mortgage, the DTI tool is aimed at reducing the probability of a systemic wave of households defaulting.
“We believe introducing DTI restrictions will reduce financial stability risks, support house price sustainability, and fill a gap that is not covered by existing policies.
“Introducing DTI restrictions will also allow us to loosen LVR settings without increasing risks to financial stability.”
Anne Gibson has been the Herald’s property editor for 23 years, has won many awards, written books and covered property extensively here and overseas.