Hint on lending limits

The Reserve Bank Financial Stability Report says the housing market is the number one risk factor in the economy. Photo / 123RF

Two years ago I wrote that banks shouldn't lend people more than three or four times their annual salary.

This was at a time when banks couldn't give people money fast enough, knowing full well that house prices were rising so fast that even if a borrower defaulted the bank would be on a good bet if it forced a sale.

Back then I pointed out that in the UK the Bank of England had told lenders to restrict loans to 4.5 times a person's annual income.

It's a simple measure that restricts what people can pay for a home, and so helps keeps prices down to affordable levels.

I also wrote that borrowers who avoid spending every penny on loan repayments will be in a better position to survive redundancy, unexpected bills and rising interest rates (which are trickling up now).

Wheeler has recognised that debt-to-income limits is a good idea. Trouble is, the damage has been done, compounded by a Government that looked the other way while the housing shortage became a national embarrassment.

Wheeler is about to publish a consultation paper on debt-to-income limits. There's no suggestion they will be introduced any time soon, and in a way - why bother now? The damage has been done. But it's good he's thinking about it for next time.

According to the RBNZ, if mortgage rates were to increase to 7 per cent around 4 per cent of borrowers would be under severe financial stress.

Meanwhile, The Reserve Bank Financial Stability Report says the housing market is the number one risk factor in the economy.

Wheeler says the rate of housing building "remains insufficient to meet population growth and address housing shortages".

Prices steady
Peter Thompson, managing director of Barfoot & Thompson says the median sale price at the firm for May was $846,000.

Its new listings were down 6.6 per cent (to 1734) compared to the average number for the previous three months and 9 per cent lower than they were in May last year.

Total listings at 4298 were up a little on last month's and 40 per cent higher than at the same time last year.