Rampant lending by banks and finance companies came under fire at a parliamentary hearing into Reserve Bank Governor Alan Bollard's decision to raise interest rates yesterday.
Finance and expenditure select committee chairman Shane Jones targeted lenders giving home-buyers 100 per cent mortgages in his questioning of Dr Bollard, and Maori
Party MP Hone Harawira asked whether a credit clampdown was being considered.
Mr Jones, a Labour list MP, said New Zealand borrowers and consumers were "locked in a mindset".
He asked Dr Bollard if that mindset was being "fed by the banking sector", which was increasingly offering mortgages at 100 per cent of a property's valuation, something unknown to him when he was younger.
Dr Bollard said a "very efficient" lending market was feeding demand for money.
"But ultimately we need New Zealanders to understand that they need to live within their means," he said.
"They can get short-term financing ways around that, but they are only short-term. So our focus has been on saying that and hoping people are going to take account of that in their housing and lending decisions."
Mr Jones asked Dr Bollard if he had anything to say about the strategy and conduct of lenders of 100 per cent finance, and whether he could "think of an adjective to describe that industry behaviour".
Dr Bollard said he was not playing "a blame game".
"If people go to banks and want more money, the banks have made this available.
"But we have said to banks that it's important they look at the long-term consequences of this and their long-term responsibilities in the New Zealand economy, and I am hopeful that they have been listening."
Last month, the Reserve Bank revealed details of a study it and the Treasury were doing on options other than interest rate rises to control inflation. These include limiting the amount banks can lend on a property's value.
Officials will report next month.
Mr Harawira, MP for Te Tai Tokerau, said many in his electorate and Maori generally were poor, and indebtedness was "spiralling right out of control" in some communities.
