The Reserve Bank says its Funding for Lending Programme (FLP), offering banks up to $28 billion of funding priced at the 0.25% Official Cash Rate (OCR), will launch on Monday, December 7.
The FLP will offer three-year funding, with banks able to borrow up to 6% of their total outstanding loans to businesses and households, made up of an initial allocation of 4% and an additional incentive-based allocation of 2% based on new lending. Access to FLP funding is available over a two-year period from 7 December to 6 December 2022, subject to any extension by the Reserve Bank.
The FLP is designed to provide additional stimulus in response to COVID-19, with the aim of reducing banks’ funding costs (including deposit rates) and lowering borrowers' interest rates. It will create lending capacity for banks, and potentially be used to pay down more expensive wholesale funding.
The FLP comes on top of other stimulatory measures from the Reserve Bank including the Large Scale Asset Purchase Programme (LSAP) through which the Reserve Bank is buying up to $100 billion worth of government and local government bonds with new money, and the reduction of the OCR to its record low of 0.25%.
The need for the FLP has been questioned, especially as the cheap funding can help banks fund home loans even though the housing market is already red hot. However, one suggestion is that the cheap FLP funding ought to lead to lower floating borrowing rates, which haven't fallen in line with fixed-term rates, potentially for home loans and business lending.
The Reserve Bank says the FLP borrowing rate will adjust over the term of transactions, moving with any changes to the OCR. The FLP requires approved eligible collateral to be pledged in a similar manner to the Reserve Bank's Open Market Operation and Term Lending Facility.
"The Reserve Bank will make the FLP available for eligible counterparties to use on a daily basis, for a period of 18 months for banks’ initial allocations and a further six months for banks’ additional incentive-based allocations. Eligible counterparties will be able to access the FLP between 9:00am - 12:00pm every banking day. Settlement will occur on the next business day," the Reserve Bank says.
"The total volume of funds lent under the FLP will be published on the Bank’s D10 and D12 tables."
Below are some comments from a FLP term sheet the Reserve Bank has issued.
The Reserve Bank of New Zealand (the Bank) has responsibility for formulating and implementing monetary policy directed to the economic objectives of achieving and maintaining stability in the general level of prices over the medium term, and supporting maximum sustainable employment.
To this end, the Bank has established a Funding for Lending Programme (the FLP) in accordance with its purposes set out in section 1A of the Reserve Bank of New Zealand Act 1989. The FLP offers secured term central bank funding to registered banks, with the aim of lowering funding costs to stimulate lending growth across the economy and help reduce interest rates for borrowers.
Under the FLP, the Bank will offer 3-year funding to eligible institutions. The funding will be structured as floating rate Repurchase Transactions priced at the Official Cash Rate (OCR), each for a term of three years. Participants may access the funding over a 2-year transaction period. The Bank reserves the right to extend (but not shorten) the transaction period.
The Bank may otherwise make additions, modifications, or amendments to these terms at any time by updating the relevant page on the Bank’s website.
95 Comments
BECAUSE THE GOVERNMENT DOESN'T WANT HOUSE PRICES TO GO DOWN.
Sorry about the caps, just trying to be clear. Please provide an example of PM Ardern or one of her 'housing ministers' saying they want prices to decline .. you cannot. So every time your confused, just refer to the capitalized statement above.
I'm not trying to be rude, seriously! For your own good, understand the paradigm our government operates under.
The govt wants house prices to stay the same for years. Which is a fallacy and will cause prices to rise even further. If govt intention is to prevent a house price decrease, that's a flashing green signal for everyone to BUY BUY BUY. Especially in an environment where 1%-ish net yield is considered decent.
The housing minister said in the interview with interest.co.nz that they want to build cheap, good quality houses - without pushing down the price of existing houses. What f***ed up logic is that??? You can't create a cheaper, better alternative and expect the price of the older, worse quality houses to not lose their value. It's all lies.
The CPI includes things like cell-phone-cases which I'd only ever buy from China - NZD $4 (free shipping).
I rent here in Christchurch, you can pick up a fee-simple, standalone, central-suburb HOUSE for $340K. That's not much of a deposit, but I understand people may not want to move down here [family, freinds, job, etc].
I read a comment by Yvil, was something like; 'don't worry about things you can't change, but rather put your energy into being productive - it works every time'.
I'm probably not doing Yvil justice in my paraphrasing, but it was a great message. People are just getting angry and giving up. Start saving, put one foot in front of the other .. you will make progress - IT ALL ADD$ UP. Worst case scenario, you have a bunch of investments, THEREFORE a bunch more options.
The whinging on here has become extreme - especially given most of them, ONLY WEEKS AGO voted the current lot back in.
Out of curiosity, how do you know who voted for who?
Also, most people my age just want to buy a home to live in. Not this "get on the ladder" bullshit. I could vomit whenever I hear that phrase. I'm pretty sure the average FHB doesn't want to get on any f****ng ladder. They want a home that's not a leaky, moldy shitbox. This "get on the ladder" mentality is what's creating the problem in the first place. Buy at any cost, borrow as much as you can, sacrifice everything to buy a property - is this really the direction NZ should follow?
I hate that term too. Also, the idea just doesn't work any more. Even if your equity increases, you are still going to need to take on a bigger mortgage to take the next step. That might be alright if you bought your first house on a 25 year term at 25 - at 30 your income is likely to have gone up quite a bit, you can take on another 25-30 year mortgage, and move up to a house suitable for kids. If you buy your first house at 35 (which is close to the average now) none of those things is likely to be the case (you can't wait 5 years to get the house suitable for kids, it would not be a great idea to take out a 30 year mortgage at 40, and your income is not likely to increase as rapidly as it did from 25 - 30).
A FOAF is selling off a 12-house subdivision in Silverstream (Kaiapoi, just north of Christchurch). House plus plot prices are $399-459K for a 3-bedder. Bears out exactly Zack's comment about price levels down here.....I don't think there's more than a couple left uncontracted....and no wonder.
I cant like this comment enough. The whole fiat currency experiment has destroyed the world. That's what happens when money can just be printed ad infinitum. Inflation is literally theft of your time by making the units you store your blood, sweat and tears in less valuable.
Mike, I totally support your stance on the need for evidence for the wealth effect, including if you say it helps employment. However, in an economy that housing is the collateral for many small and medium sized businesses, collapse in house prices is almost certain to cause failure in businesses (as the banks may force them to sell either the business or their house to deleverage) thus increasing the unemployment (edited as I initially forgot to include the main point I wanted to say).
Not all businesses are indebted to the bank. Bankruptcies clear bad debt from the system anyway and make room for new growth. I wouldn't like to see the wholesale carving out of the economy. Best to give viable businesses a little help getting over the hump.
NOW, the wholesale rewarding (bailouts) of negligent and/or greedy businesses needs to stop. The 'wealth effect' is largely a fallacy.
I did not champion intervention to stop unviable businesses. Just stating the obvious fact that when the economy is going through bust period of economic cycles, the unemployment will rise. Now creating a double mandate for the RBNZ will give them extra incentive to prop up house prices.
Here's a bit of anecdotal evidence... driving around, for the first time in my life I'm seeing large signs outside big employers like retailers and building merchants advertising for workers needed. I've seen a lot of those signs. Seems there's work if people want.
DoTheMath(s),
It would seem that you can neither do the maths nor communicate in clear English. "Houses also get cheaper from the low interest". Do you mean lack of interest or should you have included the word rates? Houses prices do not fall as a result of lower interest rates, though mortgage rates do. Thus, servicing debt does become cheaper.
Should go down 0.5%.
https://www.nzherald.co.nz/business/reserve-banks-funding-for-lending-s…
I have a mortgage floating in Jan and will be looking for sub 2%.
Been getting lots of emails from banks today announcing they are dropping interest rates from the 1st December. .... Today....thanks for the warning NZ banks. Guess they don't need their customers money now when they can get cheaper funding, to then lend out to people buying houses. What could go wrong?
If this is supposed to benefit businesses, and not house prices, why don't they regulate house lending of banks to nothing below 5% interest rates? Most of the new lending appears to be going to houses, and not businesses anyway based on the stats.
I can't see the logic of the Chinese govt bullying the Australians as they are. Has the military wing of the Chinese govt got control of foreign policy or something? Attacking US allies in a fraught American transition period might play well to the Chinese home audience but I don't think it will play well with mainstream American politicians.
I would have thought that it would be more sensible to see which way a new President Biden was going to react to China than to push him into taking a hard line against China before he has even assumed office. Unless it is the goal of the PLA to push China into direct conflict with the US now before any kind of new working relationship can be worked out between the two countries.
New Zealand and Australian don't matter much in the grand scheme of world geopolitics but they do matter as US allies, as countries trying to bridge the US-China divide and as canaries in the coalmine.
I thought that our politicians had been reasonably circumspect with their comments in regard to China. Somehow I get the impression that if the Chinese govt wants to be annoyed with NZ then we won't actually have to do or say anything for them to be annoyed. We just have to make sure that the Americans don't think that we have done anything or said anything stupid to annoy the Chinese if the US has decided it will work with China once Biden has assumed office and the make-up of Congress is settled.
It is worth noting that this cheap funding to banks is for three years (although it could be extended by RBNZ).
If I was a recent FHB and/or had a large mortgage I would be prudent and paying down the mortgage as much as possible in the likelihood of increasing rates three years in a post-Covid world.
Paying the mortgage down means putting that new deck or new car off for a few years.
JAS
I am not suggesting using the loan to pay for those things at all.
I am talking about holding off unnecessary or non-urgent spending and putting that money towards reducing the principal.
That is not odd at all - given the possibility of increasing mortgage rates and interest payments following the end of FLP funding in three years time its called being prudent.
Pretty basic concept really but one you don't seem to have grasped.
I wasn't even referring to that part Noddy, but this;
"Paying the mortgage down means putting that new deck or new car off for a few years."
If people are putting all their money into paying off their mortgage, where are they going to get the funds for a new car or deck.
Really not hard to understand.
JAS
"where are they going to get the funds for a new car or deck"
You really are struggling to understand this concept.
The new deck and car (among other things) are not essential so are discretionary spending (i.e. they don't have to be bought), so they are going to defer these, not spend on these and therefore not need the funds for doing so.
As I said all very pretty simple - basic personal financial management 101.
I'm having trouble understanding JAS's issue as well P8. What you are essentially saying is reduce principal by using money left over after paying the mortgage and essential expenses. This would imply that you don't incur more debt by delving into revolving credit or get a bigger mortgage.
This seems a bit old fashioned though. If you have debt like a mortgage, and you then buy a big ticket item like a car, you are essentially using that debt to make the purchase anyway.
I think if you really want that new car or deck just go ahead and buy it even if it means increasing your mortgage. Especially if you are still reasonably young (under 60) and have a steady income. If you wait you may get too old and start to worry too much about retirement income and miss out on that extravagant sweet new ride. One should have confidence that income will keep coming in at an increasing rate and that assets are increasing in value too. This is actually most likely for most people. If it all turns to custard you may have to sell up and rent but that is unlikely.
Maybe there is more to businesses not feeling confident enough to invest than borrowing rates. Has anyone considered the fact that Treasury NZ itself assumes a discounting rate of 5-6% instead of actual borrowing costs when advising the government of the day on capital spending.
What confidence will businesses have in deploying capital in a country where even the government shoots down public investment proposals that don't stand up to its high return threshold in a low rate environment.
At a discount rate of 6 per cent 43 per cent of a project's benefits would have to be delivered in the first decade to make an investment worthwhile.
Yes. But it appears they want it to also keep house prices rising as well, because that makes NZers feel richer, and they are then more likely to spend. IMO it would benefit more people by just giving everyone a one off cash payment to spend in the economy as a helicopter payment.
The could easily direct it to businesses by regulating the minimum lending rate for houses. eg 5% minimum lending rate for housing. That should help to stabilize house prices. The reducing interest rates is the number one reason house prices have increased so much, and even property experts have said this. The problem is that they have little room to move now, without paying interest to people they loan to.
I'll volunteer an answer.
Well, I guess I might feel richer from my properdies.
But I'm actually not richer because I don't actually get that munny difference in my account. And the rates increase this year sucked out more than any feel good richness might have given me. So I'm still essentially slogging it out watching the spending as per usual.
So logic tells me don't go on wild spree based on feels.
Hang on a min... didn't we just vote JA based on feels?
The problem is that wages aren't going up to account for these house price increase, caused by they interest rate drops. So who is going to pay for the higher wages?
So all homeowners are essentially getting a helicopter payment in the form of cheap money, that allows their house price to increase and they can then borrow more using their house as a bank. Non home owners don't get anything, and are going backwards.
We funded our Housing Business with throw away munny, mostly stolen from Term Deposit Elderly. who actually Saved for their Future...and paid Taxes......or downsized to have a bit of spare cash....... Cannot blame Covid..
USA.......hit harder....plus Covid.... Two stupid ideas.....Two wrongs do not make a right. Elderly lose out in sickness and Wealth....
All because we trusted Politicians and Bankers to "Save us"......by doing things right.....not totally being screwed. ...by them. DUH!.
hhttps://www.zerohedge.com/markets/its-really-bad-almost-one-third-small… away munny...
This will bring Labour down in 2023. They are now stuck between a rock and a hard place. They can't use National as an excuse for the housing market. If they tax housing, they will lose votes. If they don't do anything, they will lose votes. Either way it may have been a good election to lose!
They have their excuses. They have already said that asset prices all over the world are gong u due to covid. So they aren't taking responsibility for NZs situation. Not only that, but NZs house price bubble is one of the worst in the world, even worse than Australias, so even though it maybe occurring in other countries, NZ is arguably the worst example of house price increases due to the record low rates and lack of taxation over property. . Most other countries have more taxation on property than NZ has.
Full Speed Ahead......then crash and burn........whatever next.......our Pilots Orr, Jacinda and Robertson, need a training session, before the wheels come off.. Minus the brakes and the breaks in the free for all......Pot.
Negative interest....whatever next.....free all the jails......The Ponzi used to be illegal, so did stealing from Elderly....Now it is Mandatory.
Never trust an Aussie Banker System, a Politician with a hand in yer Pocket and an over paid...so called Reserved Bwanker with an axe to grind. OCR...must stand for Open Cash Register....at a Pinch...I would say.....
Never trust an aussie banker system....but we did...and here we are
What were the chances of both Business NZ CEOs-Phil O'Reilly and Kirk Hope-both coming from Westpac...lobbying on behalf of thousands of New Zealand businesses and manufacturers?...were they?
or have we been conned...surely not...cause they lend to business too....if you have a house!
Do any statistics at school Alter ego?Any at work?
I am older, but no wiser...but I spread my risk, very wide. I do not trust anyone with funds, because it is all bull-shite and led by the Fed. Trillions in debt. Just like NZ...Print and Tax, Print and rob Peter to Pay Paul, Bitcoin, whatever next. Funny Munny is no laughing matter, but it does matter...so is pumping and dumping, short selling, I could go on and on. Houses are just the same...but ever more expensive. I rant, but no one understands...Just idle talk from Jacinda down.
Oh well have a nice day..Sunshine, but no floods today.
This an article about American shenanigans.....but it can equally be used to understand our AUSSIE AND NZ Fiat...driving us all nuts...And Houses is not a solution.
Middle Class is being diddled....but nothing new there. it does explain things...but no real solution.....Print and be damned.....no matter what. USA .....slaves...to the cause.
And the so-called elite, caused it.....!... They think we are all stupid....and revolting....(Maybe we should).
https://www.zerohedge.com/geopolitical/one-world-currency-included-endg…
Housing includes rent, new builds, and other house improvements.
https://www.interest.co.nz/news/91579/statistics-nz-completes-its-3-yea…
Note that it doesn’t include land price inflation
Has anyone ever said how all this money printing is going to be paid for? It looks like there is a mandate to print as much as possible. All I can see from it is the wealth gap opening between rich and poor. Unfortunately everyone has to do what is right for themselves, but I have a sense of utter sorrow for everyone that are locked out of having a house through no fault of their own by the NZRB and goverment. I am blessed to have a home to call my own just because I was privileged to buy 20 years ago. I feel a great fear for what the future holds as we are walking like sheep into a dark hole. I still would like to know how this money is going to be paid back. Not the legacy we should leave our kids.
I don’t think there is any intention to pay it back.
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