By Jenée Tibshraeny
The decision around whether the Reserve Bank (RBNZ) will be given additional tools to restrict mortgage lending now rests with Finance Minister Grant Robertson.
The RBNZ confirms it has advised Robertson on new measures, like debt-to-income (DTI) restrictions, that could be used to regulate mortgage lending.
It intends to publish this analysis once Robertson responds to it.
However, Robertson says a timeframe around the matter hasn’t been decided upon yet.
Robertson’s office confirmed an announcement definitely wouldn’t be made this week, as Robertson is visiting different parts of the country to talk about the Budget.
Asked whether she could provide any initial thoughts on the RBNZ’s analysis, Prime Minister Jacinda Ardern on Monday gave interest.co.nz a blunt answer: “No.”
With the RBNZ due to be in the spotlight this week with the release of its quarterly Monetary Policy Statement, it could face questions on the likes of DTI restrictions, even though this is a “financial stability” matter that falls outside of the scope of the Statement.
RBNZ’s preliminary advice
However, the RBNZ, in its biannual Financial Stability Report released earlier this month, provided a preliminary assessment of the instruments it could use to meet its government directive to support more “sustainable” house prices.
Of the new tools, it favoured DTI restrictions, saying these “would be the best option for supporting financial stability and sustainable house prices over the medium term".
While Robertson only wants DTI restrictions applied to investors, the RBNZ said, “The impacts on access to credit for first-home buyers could be further mitigated with speed limits.”
In other words, the RBNZ could say that x% of mortgage lending can go to borrowers who don’t meet the minimum DTI ratio.
The RBNZ has taken this approach with its loan-to-value ratio (LVR) restrictions by allowing a fifth of banks’ mortgage lending to go to borrowers (owner-occupiers) with deposits of less than 20%.
The RBNZ noted that should Robertson give it DTI tools, and should it decide to use them, they would take at least six months to implement.
The RBNZ was less enthused by restricting the issuance of interest-only mortgages.
It said this was likely to be less effective than LVR and DTI restrictions, as banks already undertake lending assessments on a principal and interest basis.
“Complex rules may be necessary to limit opportunities for avoidance (for example, by using revolving credit and mortgage top-ups)," it said.
The RBNZ was also less in favour of requiring banks to hold more capital for mortgages they issue.
It said capital requirements for mortgage lending in New Zealand are already relatively high by international standards.
What’s more, the impacts of changing capital requirements would flow through more slowly than the other options, and they’re less likely to dampen house price growth.
My opinion
There doesn’t appear to be much urgency to impose further mortgage lending restrictions.
As detailed in this April opinion piece, both the Government and the RBNZ will want to see the impacts of the reinstatement of LVRs, extension of the bright-line test, and removal of the ability for property investors to write off interest as an expense when paying tax, before imposing further restrictions on bank lending.
These measures are widely expected to reduce demand for housing.
The Treasury, for example, now forecasts house price growth flat lining.
Meanwhile ANZ economists maintain that while New Zealand still faces a massive housing shortage, the “demand pulse is probably close to peaking”.
This said, there will be a much greater focus on financial stability worldwide in coming years.
Central banks have undertaken seismic amounts of monetary stimulus via profit-driven retail banks.
Central banks have essentially said, “Go forth bankers and create credit. You decide who gets it; just get it out the door.”
But as the COVID-19 dust settles, they're going to have to say, “Ok bankers, we have politicians on our backs.
"They loved your work, but things have got awkward now that they can't deliver on their promises to improve housing affordability and reduce inequality. We need to talk sustainable lending practices and social licences.
"But more importantly, we can’t have you passing out from that 2020/21 sugar rush.
“You best not be caught with your pants down, when the tide turns and we start hiking interest rates.”
The question now is, will central banks end up saying, “Oh wait, tightening monetary conditions is going to upset too many people.
"We’ll keep rates relatively low for longer and try to prevent the economy from overheating by focusing more on restricting bank lending.”
*This article was first published in our email for paying subscribers. See here for more details and how to subscribe.
104 Comments
There is little to no effective regulation where it is needed, and that's the problem. And while politically there may be 'limits to socialism in NZ', we are a long way from doing anything substantial around looking after our people. The 'socialism' we see is more about propping up the banks, and subsidising landlords. All while ordinary people are getting fleeced. So there are limits as you indicated; if the Government keeps supporting the wealthy too much, the people start to rebel.
The do nothing government when it comes to housing - Ostriches raise their head out of the sand more than the government and RBNZ do.
Mind you the population will eventually work out its own solutions (no point waiting for the government to) - I know 2 young couples heading across the ditch and our young neighbour who bought their house 3 years ago (and are struggling to make ends meet ) have just bought in Christchurch and have put their Wellington house on the market. He said what we make from the growth and deposit will just about pay the new house off in Christchurch - more job opportunities down there as well.
I think you will find they are do nothing with basically everything. Much like National, we have caretaker governments in power who are too scared of their own shadow. This means when they do act, they do it either half heartedly (ineffective) or in the direction of their ideology. The former means they end up doing nothing, the latter means they end up doing the wrong thing.
Not sure why anybody was expecting any different. Jacinda and Blubber were elected to take action on housing in 2017. They spent four years and counting doing nothing about it and they will continue to do nothing until paying lip service again when they next need some votes.
I thought removing the tax advantages was a pretty bold move, hardly nothing. There are a lot of state houses being built, there is an NPS instructing density near public transport, a review of the RMA, etc. not sure what else they can do? Know any available builders?
Yet another fail. So very disappointed. Considering how they single handedly created this housing mess with close to 100k migrants incoming prior to lockdown and letting the house prices sky rocket in their watch. They were already in government then and blaming National just won’t wash. Very disappointed.
'Government-owned entities have racked up almost $13 Billion in debt, a figure expected to be close to $21 Billion by 2025, Budget documents show. But this borrowing is not included in the Governments more than $110 Billion total net core Crown debt figures'.
Robbo's response when called out on it? 'Nyah Nyah Nyah Nah Nah, blame National - they started it'.
"Considering how they single handedly created this housing mess "
I mean sure if you totally ignore the actions of the previous government who did nothing on housing whilst turning the tap up big time on immigration. Then yes i am sure you can say single handedly. I concur the current government have up until basically this year made no moves to improve things, but to lay the blame squarely at their feet for the current multi-decade boomer get rich scheme shows a real ignorance of recent history.
The actual truth is that successive governments since the 90's have caused this issue by either their actions or in-actions to keep the gravy train going.
It is also an admission of failure in the private market, which has totally failed in housing. Its crazy to think that even those on the right to far right see this now as the government's problem to fix.
To be fair, in 2015 and 2016 Jacinda screamed that her generation is being locked out of the housing market when in opposition. She campaigned on reducing immigration to ease the pressure on housing and also campaigned on sustainable house prices.
She became PM in 2017.
Mar 2018 - Mar 2019, we had over 90,000 migrants coming in adding pressure to the market that was already insane.
Under her watch house prices ballooned. She basically did the very opposite of what she campaigned for. Now that she got her family home in Sandringham, suddenly her generation is no longer locked out of the housing market.
Her actions have spoken much louder than her words.
History will remember her as the person wearing the scarf and hugging the families of the shooting victims, along with the daily covid updates telling us all to be kind and despite all the failings avoiding a large scale outbreak.
All the other failings, ineptness and incompetence will be overlooked
Glad to see you point this out...figures like 10,000 migrants were bandied around when campaigning. If not for covid migration would have marched on and would have made house prices far crazier than we see today. I wonder how many Millennials accept its all down to 9 years of National now?
National never promised to wave a magic wand and fix the problem overnight. They indicated it was a complex issue with many variables and it would take time to address. I guess they were right. But in a desperation for votes and power, Jacinda said anything to get elected. She has not even delivered a pittance of what she promised. She deserves just as much scorn, if not more, than her National colleagues. I call them colleagues because, let’s face it, they’re pretty much one and the same.
Considering they harp on about introducing LVRs as a great thing, ignoring it was them that removed them in the first place, I'd guess they will see it as a positive.
From RBNZ - "Ireland and the UK have LTI (loan to income) limits of 3.5 and 4.5, respectively. LTIs are conceptually similar to DTIs, but since they do not include total borrower debt we can expect the DTI distribution of the mortgage portfolio to be higher than the LTI distribution for any given country."
So I take that to mean they'll be comfortable with 5, or higher.
"The RBNZ was less enthused by restricting the issuance of interest-only mortgages"
This is the problem - both Robertson and Orr does not want to act. Orr is passing the buck on Robertson for DTI but not interested in interest only loan, that can actually contain speculative demand. Even if he is less enthused but instead of waiting for DTI, should try IO as that can be done immediately on new loan and existing IO can be phased out over a period of time.
What this both are arguing is nothing new, so what new Mr Orr was planning to announce today that he was waiting in last briefing to the press.
Knew earlier that the script has already been written and both are BS.
Imagine if they do introduce DTI and announce the date after six months, their would be a mad rush to buy - FOMO - next six moths will be crazy and with this...Will they be helping FHB or ...........
Are this people ignorant or stupid or both but in any situation should be.......as is evident that no one has any intent, when Robertson can say, sorry cannot respond as out on tour ( not international) or when PM, who has no answered bluntly says NO RESPONSE is like telling FHB go to hell...can understand how serious anyone is.
Yeah stop new IO loan and phase out the existing.
More than investor, it will be flippers who will be hit hard and containing any speculative demand will be good.
Also reason of Tax change by Jacinda Arden was fairness - remove undue advantage to investor and on that logic / basis stopping interest only loan should be on top of the list as it multiplies the purchasing power in Auction room - No need to explain, how as is very evident.
Jacinda Arden response of NO or Robertson response that away from office, sums it up as Mr Orr will be Mr Orr- messiah of investor, so cannot blame him, actually as he is doing what suits him.
Really, they aren't going to do anything and like others have said, will wait on the directive from the FED. Our lending environment has become a vassal of the US, but where we direct that lending is skewed completely differently to the US. Hence we see very different outcomes.
It's hilarious that during a time of great uncertainty and risk (the pandemic), central banks through caution to the wind and act outside of their financial stability mandates, throwing the kitchen sink at every problem. Then when the dust settles, they realised they are in the sh!t.
> "...both the Government and the RBNZ will want to see the impacts of the reinstatement of LVRs, extension of the bright-line test, and removal of the ability for property investors to write off interest as an expense when paying tax, before imposing further restrictions on bank lending."
It's kind of hard to gauge the impact of these measures when you don't have a control group. The rest of the world isn't stopping to wait and see what happens, there are other factors at play here too.
House prices may fall (or what's the term we're using now; "moderate") independently of fiscal and monetary policy. Mortgage rates may rise independently of the OCR. I think this whole "wait and see" approach is a bit myopic, and frankly quite concerning, since it seems to indicate that they don't know what the effect of these changes will be.
" Ball's in Robertson's court, as the back-and-forth over restricting mortgage lending continues"
Jenee you are not 100% correct. Ball is still in Mr Orr court as could go for Interest Only and for that he needs no authority.
This passing the ball has and will continue as is game plan of both Mr Orr and Mr Robertson.
You should be asking, What is stopping Mr Orr from targeting Interest Only loan and Mr Orr, if he feels may not be very effective than also no harm in trying when are thinking of different tools.
Will not know try one tries but the reason is hesitant is as that stopping IO may actually contain the ponzi.
Jenee, How could you give a clean chit to Mr Orr. For if he is serious can still act on IO instead is playing politics as he know the pulse of politicians that Robertson will be shit scare for DTI as is evident the way Jacinda and Robertson are avoiding question but for how long can they avoid. Unless RBNZ announcement has something that they can defend themselves with which we don't know, yet and they are waiting for the announcement.
You are right alitte - the RBNZ could impose restrictions around the use of interest-only mortgages without Robertson's permission. But it hasn't wanted to and favours DTIs.
I wrote about this in an opinion piece in early April. Here's a snippet from that piece:
Had the RBNZ believed its efforts to encourage more borrowing and investment were putting the banking system at risk, it could’ve acted sooner to rein things in.
But, bar the reinstatement of LVRs, it hasn’t, raising the question of why it would do so now that government has acted.
The data shows banks have certainly been engaging in riskier lending.
These graphs show how the portion of interest-only lending increased last year as banks were given a pass from their regulator to offer more mortgage repayment deferrals.
While the portion has dropped back down, the value of interest-only mortgages - especially for investors - remains at a high level.
The RBNZ told interest.co.nz it could restrict interest-only mortgages now if it wanted to - without the government’s permission.
“An interest-only restriction is not necessarily a macro-prudential instrument and the Reserve Bank could deploy it under s 78 (1) (fa),” an RBNZ spokesperson said.
“Section 78 (1) (fa) gives the RBNZ the power to regulate on matters relating to "risk management systems and policies" as long as it supports the soundness and efficiency of the financial system. A restriction on interest-only mortgage lending fits this category.”
However, when interest.co.nz asked Robertson’s office whether the RBNZ could restrict interest-only lending without government permission, a spokesperson from his office framed the situation differently.
They acknowledged the RBNZ could restrict the use of interest-only mortgages on a bank-by-bank basis as a “micro-prudential tool”.
But if the RBNZ was to implement restrictions on a system-wide basis, which is what Robertson’s asked it for advice on, it would be considered a “macro-prudential tool”. And Robertson would need to give the RBNZ permission to use it.
This is clearly a complex legal issue, but the fact Robertson and the RBNZ gave interest.co.nz different sounding answers to the same question, suggests the issue of restricting interest-only mortgages hasn’t been thrashed out in detail.
Thanks Jenee.
I had read and from that only knew that Mr Orr need no authority for IO.
No sane person can argue the merit of controlling Interest only to curb speculative demand. What is annoying is the silly reason from Mr Orr that he is not keen as will not help or will be hard to impliment. Worse is that he gets away with such excuse.
If he is not interested in controlling the speculative, should be upfront as than no one will try to reason but will allow him to dictate. It is frustrating when they say that want to control speculative demand and ignore the best available tool.
Another point that I read and valid : Is interest only not a disadvantage to FHB over investor than by Jacinda's logic also for tax change, shouldn't IO be banned.
Same as before Christmas.
Housing the only thing pulling the economy along coming out of Covid.
It will be let run.
https://www.economist.com/asia/2021/05/22/australia-and-new-zealand-can…
Australia and New Zealand cannot hide from covid-19 for ever
The countries need a plan for reopening to the world...
Here’s a list of B727 crashes - is this name pun intended to be irionic if the worse case does occur?
https://en.m.wikipedia.org/wiki/List_of_accidents_and_incidents_involvi…
I'm a potential FHB. Having a house isn't everything.
I've done very well out of stocks after saving in Australia and am in a position to buy easily but I'm seeing big increases in supply happening at the same time as what I think will be low net migration with big numbers moving to Australia (it makes more sense than ever right now for a lot of people). Then we are sitting on one of the most over valued property markets in the world with changes to interest deductibility and RMA reform coming.
I'm not expecting the market to crash but I'd still rather have my money in more productive things over the next few years.
So yeah I'm still holding out and not very worried about it.
We are taught in NZ that housing is the be all and end all, you must be constantly trying to get a bigger / 'better' house, eye-popping debt doesn't matter at all so long as you can get that next bigger / 'better' house, once you get the next house you can start using it as a giant credit card / ATM......it's an extremely warped mindset that has become ingrained here. The government / Reserve Bank are like the enablers, pushing more debt 'dope' on the addicted populace and too scared / cowardly to stage the much-needed intervention. Witness language such as "it's what Kiwis expect" coming out of the mouth of our supreme leader.
Here's why they will continue to do absolutely nothing of any consequence -
'These measures are widely expected to reduce demand for housing.
The Treasury, for example, now forecasts house price growth flat lining.'
The pitiful measures already enacted will do nothing to curb house price growth, but Treasury and Robbo have decided to pretend that they will.
Absolute farcical situation.
1/ Slash the OCR to 0.25%
2/ Load up every man and dog with eye-watering amounts of housing debt
3/ Banks and economists start bleating and hand-wringing about what could happen if / when interest rates go up
We are run by jokers, clowns, and idiots.
I've lived in both of them and that's utter garbage.
New Zealand has the worst of all worlds on just about every metric.
Living in Auckland is as expensive or more expensive as living in London and has none of the benefits.
The thing that sticks out most when you come back here is how saturated the media in this country is with the trope that New Zealand is the bestest place in the world.
Brainwashing.
I feel real sincere pain and concern for young kiwis who decide to stay. There is still a country that offers genuine hope and an opportunity to make your life 100 times better and its only a 3 hour flight away. Leave the greedy oppressors and come on over and enjoy the positivity.
Still plenty that can and have made it in New Zealand so no need to leave. Things have not really changed that much I knew someone who left to Australia 40 years ago to drive heavy trucks at the mines and sacrificed a few years of there life to be paid well and save every cent they could and then come back to NZ. Most that leave will end up wanting to come back at some point.
Its much much harder now than it was even one year ago and it was extremely hard then. Life is so much easier in Oz I promise you. We know you have got a house and everythings rosy for you being fortunate and all, but not everyone has been fortunate. NZ should be a better country but successive governments have ruined it and Orr burnt the ruins.
Good comment..
Never understood why kiwis get so obsessed about possibly not getting Aus citizenship. It's extremely hard to get, especially after age 45 basically impossible. Doesn't change anything living there oh except no benefit big deal and can't vote. Would've thought that's a blessing, hardly a hardship.
PERCEPTION
Perception is very important and currently perception is that Mr Orr along with Jacinda is not serious in containing the ponzi and this gives rise to FOMO. As long as FOMO remains, will be hard to contain the ponzi.
It is very important for Mr Orr to act, even if he personally feels that will not have a big impact but his action is must to change the Perception and calm FOMO.
Also than may be people will look at other productive avenues in NZ as now even many business have put their business on silent mode and pursuing real estate for fast and easy money without risk and compliance hassel.
"Ball's in Robertson's court, as the back-and-forth over restricting mortgage lending continues"
Does it mean that now Mr Orr has done all that it can and has no more role as everything is in Robertson's court.
How did RBNZ managed to manulate the narrative / shifting limelight from them.
Amazing ! Hats off to Mr Orr's PR team.
Failure on the part of media for falling for their spin.
NZ businesses, workers and renters are being held to ransom by debt based speculation. Its still amazing to me that the Govt seems hell bent on supporting it, especially the current one, vs doing anything constructive about it. National I would understand but a Labor govt...wow. Already prepping my kids on options in Australia after their education is finished.
For the speculator and boomers -its OK - we can import another million people (that no one voted for) from Asia and the Orient to rent you leaky investments, and wipe your butt and dribble, while you try to avoid the remaining increasingly meth riddled underclass.
The banking system is so fragile that the Govt or RB would not want to take any severe action.
If the banks are in reality broke, and QE is really a form of counterfeiting, and suppression of interest rates is to stop householders from going broke then why try to break or disrupt the system before the Great Reset?
https://www.ccn.com/banks-are-broke-viral-video-from-2013-more-relevant…
The value of "money" is so low which makes house "prices" look so "high".
"The RBNZ was less enthused by restricting the issuance of interest-only mortgages.......
....“Complex rules may be necessary to limit opportunities for avoidance (for example, by using revolving credit and mortgage top-ups)," it said."
Complex rules...Not true as can simply stop interest only loan for purchasing house and allow for business ( Even Foreign buyer ban was told is not possible but was managed)
Finding excuse highlight that those in power are hell bent on not taking any action and it is this that confirms to many like me that Real estate is the only way to make money in NZ.
No point in cribbing though is valid as many are deprived of home but like it or not house will always be a speculative commodity in NZ supported by politicians of all parties as people deciding do not have to face "conflict of interest".
IO
Do you eat more than is absolutely necessary at each meal? There are plenty of hungry people in the world
Do you drive when you could walk or bus, or use an ICE car? What about climate change
Do you travel for holidays, eat fish, beef or drink milk? Climate change again
Do you wear clothes you can't repair, have an iPhone, or buy cheap products from China? You may be supporting forced or indentured labour and creating waste.
Are all of your investments ethical? Are you absolutely sure?
"Another who already has all that, wants all that and more at other peoples expense."
I personally don't mind boomers and your average mindless Kiwi property fanatic enjoying their stellar capital gains, but why should it be at the expense of taxpayers, savers, renters, & future generations? Moreover, running up a huge debt and then eyeing off inflation coming over the horizon is akin to hardwiring our economy with a thousand tonnes of TNT. The central banks are trying to give asset owners a free lunch, but there is no such thing as a free lunch - someone always ends up paying for it.
I bought a house, ex hnz, it was empty for quite some time as it had been stripped and decontaminated for P. They took the kitchen and all fixtures, carpet and drapes out. I fixed it up so it could be rented. Should I have paid a tax for the time it was empty though?? Oh yeah, that's right... I did pay income tax on the rent! And acc, gst when I sold it, and the next year...
"Asked whether she could provide any initial thoughts on the RBNZ’s analysis, Prime Minister Jacinda Ardern..." responded she has no thoughts...........
Robbo has his hate targets, to prevent people making their own investment decisions by changing the rules to make anything else uneconomic. You have to invest the way he sees fit and be the same.
Robertson is becoming McBean, but are we to be star-bellied or plain-bellied sneetches Grant?
NOFX called it in their song "This Machine is 4". "Making everyone the same is the end game".
I could also pick Jacinda in the lyrics. "Noses up and peering down, tight lips pursed into a frown"
could also pick Jacinda in the lyrics. "Noses up and peering down, tight lips pursed into a frown"
Same problem as in the U.S. as the Democrats machine and elite never understood the pain outside their life bubbles leading to the rise of Trump and the Trumptards. The progressive elite still effectively sees the working class and battlers as deplorables. These people are targeted with platitudes but are really despised behind closed doors. They don't know their way around a Thai menu, the hip wines to keep, and prefer Alien Weaponry or Dolly Parton over Flying Nun. Expendable.
Funny, I would've considered the progressive elite are largely the working class... ie public servants, not the trades people or business owners. Yes I mean govt bureaucrats I think think that they're progressive elite. I think they only despise non Labour voters yet secretly probably harbour plenty of National and ACT voters in their ranks.
I would've considered the progressive elite are largely the working class
I should have expressed that better. I'm referring to the lower socio-economic class. For ex, in middle America, you have many dispossessed as the result of the hollowing out of manufacturing. In NZ, it's a little different as there was no real manufacturing base to start with. These people rely on govt support as they try to progress through life. Middle-class NZ likes to denigrate them if they rely on benefits 100%. Ironic really considering so many NZers rely on handouts like WFF.
Creating a bigger Ponzi is following the illegal use of Law to keep the Balls rolling. Screwing the Benefit system for the maintenance of the Ponzi is a Crime.
Participating in the Ponzi as a Politician in Charge, should be a jailable offence. Not speaking the Truth is a Lie.
A country of 5 million, shoult not have more crooks involved in the Ponzi as a matter of course.
We not only do not have Affordable Houses here, we have allowed the Largest Ponzi created in the History of NZ and it is Pinching Pennies to pay with the Middle for Diddle Tax Avoiding Bankers, Politicians and Participants.
This a crime of the Century. It should not be allowed nor applauded. Interest free is not. Tax free is not. Political and Monetary Football is moving the Goal posts for someonelses Gain. Where is the Justice System .....because I believe we have been Conned.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.