PHOTO: The Reserve Bank of New Zealand. FILE
The Reserve Bank is consulting on ways to tighten mortgage lending, following an update to the agreement between the Government and the Reserve Bank on addressing housing issues.
The move could see a drop in high loan-to-value-ratios and the implementation of debt-to-income restrictions to tackle “financial stability risks”.
Finance Minister Grant Robertson said the update to the Memorandum of Understanding (MoU) “to further protect the financial system and support the Government’s housing objectives” should not unduly impact first home buyers.
“This change will ensure that the Reserve Bank has the flexibility to respond to emerging financial stability risks and deploy appropriate tools as required,” he said.
Deputy Governor Geoff Bascand said the update to the MoU “adds debt serviceability restrictions to the list of tools available which will enable us to be more targeted in our approach to tackling financial stability risks”.
Bascand said they were focussed on making sure borrowers were resilient to future conditions, adding he was particularly concerned about people who had borrowed with high loan-to-value-ratios (LVRs) and high debt-to-income ratios, in the last year.
“If house prices were to fall, some buyers could face the possibility of negative equity – which means the value of their property is below the outstanding balance on their mortgage,” he said.
“We’ve already made adjustments to LVR restrictions to partially manage this risk, but we haven’t seen a sufficient reduction in risky lending.”
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