RBNZ calls for tougher mortgage rules ahead of rate decision
SYDNEY, September 3 (Reuters) – The Reserve Bank of New Zealand said on Friday that it plans to cut sub-prime mortgages further as it cuts stimulus measures amid rising inflation and a continuing surge in house prices .
Investors continued to buy properties, bolstered by historically low interest rates and cheap access to finance from government stimulus spending in the event of a pandemic.
The Reserve Bank of New Zealand (RBNZ) said on Friday it was seeking advice on its proposal to reduce subprime mortgages by further reducing the amount of high loan-to-value ratio (LVR) loans to owner-occupants.
“We are proposing to restrict the amount of loans banks can make above an LVR from 80% to 10% of all new homeowner loans, down from the current 20%,” Deputy Governor Geoff Bascand said in a press release.
“Our analysis indicates that house prices are above their sustainable level, and the risks of a correction in the housing market continue to increase,” he added.
LVR estimates how much a bank is lending against a mortgaged property, relative to the value of that property. Borrowers with LVRs of over 80% are often seen as stretching their financial resources.
The bank lifted LVR restrictions on mortgages in April last year to boost credit and boost the pandemic-stricken economy, but reinstated restrictions in March after the housing market accelerated rapidly .
RBNZ has invited interested parties to consult until September 17 and plans to implement the new LVR parameters from October 1.
The central bank also plans to launch a consultation in October on proposed restrictions on the debt-to-income ratio (DTI).
The RBNZ is expected to raise interest rates next month, after delaying an increase in August due to New Zealand’s first case of COVID-19 in six months.
(Reporting by Renju Jose; writing by Praveen Menon; editing by Leslie Adler and Sam Holmes)
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