Finance Minister Grant Robertson says he moved as quickly as he thought was responsible, empowering the Reserve Bank (RBNZ) to impose new mortgage lending restrictions.
Robertson and RBNZ Governor Adrian Orr on Monday signed a Memorandum of Understanding, which stipulates the RBNZ can impose debt serviceability restrictions on banks’ mortgage lending.
Orr formally asked for these debt-to-income (DTI) tools in December - eight months ago.
In meantime, mortgage lending has surged, with banks writing $60 billion of new mortgages between December and June, according to the latest available RBNZ data.
Mortgage lending to borrowers seeking a lot of debt compared to their incomes has also increased as house prices have shot up.
The grey lines in the graph below show the increase in the portions of new lending to borrowers with debt worth more than five times their incomes.
Asked by interest.co.nz why he couldn’t give the RBNZ DTI tools sooner, Robertson said: “We’ve moved as quickly as I think is responsible.
“I’ve made clear that for me the introduction of debt-to-income restrictions is something we have to handle carefully.
“We want to make sure that we don’t price first-home buyers out of the market.”
Put to him that it seemed ironic his fear of being seen to hurt first-home buyers might’ve actually put them in a worse position. They now face higher hurdles to get mortgages on top of even higher prices, which might have been lower if restrictions had been imposed earlier.
Robertson responded: “I don’t accept that at all. We think we’ve made policy decisions that’ll tilt the balance in favour of first-home buyers."
He managed to get Orr to agree to include a line in the MoU that says, when designing and implementing DTIs, the RBNZ will "have regard to avoiding negative impacts, as much as possible, on first-home buyers, to the extent consistent with the Bank’s purposes and functions".
Robertson noted: "The RBNZ has responsibility for the overall financial stability of the country. I think they’re doing their job responsibly.”
More on what the RBNZ is doing
The RBNZ will in October start consulting on implementing DTI restrictions and/or interest rate floors.
It previously estimated it could take at least six months to design and implement DTI restrictions, but said interest rate floors could be implemented more quickly.
Interest rate floors would set a minimum interest rate at which banks have to ensure borrowers can afford to repay their mortgages.
The RBNZ on Tuesday also announced plans to tighten loan-to-value ratio (LVR) restrictions, to make it harder for owner-occupiers (including first-home buyers) to get mortgages.
From October 1, only 10% of banks’ mortgage lending to owner-occupiers can go to borrowers with deposits of less than 20%. Currently, 20% of lending can go to these higher-risk borrowers.
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The RBNZ is making this change despite Robertson in February directing the RBNZ to have regard for the Government’s housing policy when implementing macro-prudential tools like LVRs.
This policy is to “support more sustainable house prices, including by dampening investor demand for existing housing stock, which would improve affordability for first-home buyers”.
The RBNZ’s general manager for financial stability Geoff Bascand said: “We are particularly concerned about those who have borrowed in the past 12 months at high LVRs and high DTIs.
“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.”
The RBNZ reimposed LVR restrictions in March, after removing them in May 2020 due to COVID-19.
Collins accuses the RBNZ of ‘seeking headlines’
National wouldn’t say whether it would've gives the RBNZ DTI tools.
The former National-led Government declined such a request from the RBNZ, like Robertson, out of fear of hurting first-home buyers.
Asked by interest.co.nz what she would've done if she was in Robertson’s shoes, National leader Judith Collins took the opportunity to have a go at the RBNZ.
“I think we would be a little worried about some of the things that have been going on at the Reserve Bank,” she said.
“I always like reserve bank governors and reserve banks to be boring people, not seeking headlines.”
Asked what she was specifically worried about, Collins referenced a slightly different issue - the way the RBNZ had conducted monetary policy. IE the way its lowering of interest rates and provision of ample liquidity had boosted inflation/increased the cost of living.
71 Comments
Reminds me of that Far Side cartoon. On viewing the gunfight, one cowboy saying to the other “well the sloth got him, you know old Joe the sheriff ain’t as fast as he used to be.” This government in formation, pre 2017 was very fast on the draw, talking. In actual government, very slow on actual doing.
Well CPP may be good or bad but they say is what they do unlike politicians like Jacinda, who says one thing and do the other.
With dictator one know what they do and how they behave it is this politicians in democratic set up who are more dangerous, so be aware of them.
Yeah mate xing, you know, I think many things you say make some sense. But to suggest "leaders should know' is pushing things a bit far. I would suggest they are only humane and make policy as they see fit at the time. Obviously they gaze at the crystal ball to try and envisage the future. All we can hope as a collective world is they ' who ever they are' make some sensible decisions and hopefully inclusive with all humanity.
I agree Brutus I voted Key for that particular issue. I have always been against buying family homes and turning them into rentals believing it would distort the housing market. However that was then this is now. Let's face it the Nats done nothing so I get tired of the commentators bleating about the present Govt.
Surely we have learnt by now that any promise or proposal made by ardern or her minions is a fallacy of false hope. Whatever keeps you believing in them a bit longer. The new harbour crossing should have been done 20 years ago, and I am surprised the greens have not chipped in yet, but they know they will never be held to account
Surely we have learnt by now that any promise or proposal made by ardern or her minions is a fallacy of false hope. Whatever keeps you believing in them a bit longer. The new harbour crossing should have been done 20 years ago, and I am surprised the greens have not chipped in yet, but they know they will never be held to account
Robertson noted: "The RBNZ has responsibility for the overall financial stability of the country. I think they’re doing their job responsibly.”
If this is the result of acting responsibly, than god knows what happen if they act irresponsibly. Oh missed it "I think"....
Let's start with the lack of necessity of making repeated cuts to the OCR over the last 3 years.
And let's end with the lack of action in raising the OCR over the last 6 months.
We could also throw in the lack of change to the legislation governing the Reserve Bank, and the fundamental flaws in the CPI.
I think they are going to withhold the interest rates rises for as long as possible. They seem to think inflation is only temporary and that seem to be the narrative ATM.
But there is again FOMO in the market due to the lack of supply, and the delays from the introduction of any measures give people more time to buy before they come in.
Was Robertson fast....lol.
If one sees the headline on LVR it seems to indicate that RBNZ is going to raise the LVR for investor BUT reality is that are just going to reduce high risk LVR to FHB from 20% to 10%>
So headline is misleading.
Also in December, it was decided in principal to have DTI but details and formalities were to be worked before Robertson signing on it SO what is Almighty Orr talking that will start discussion now with bank...what the hell was he doing uptill now ......still in era where committees were created and discussions were held for ages to delay. In today's time if not already discussed with banks and government can do it over a week or two as obviously when they knew is comming would have blue print ready to roll when the time comes.
See the delaying tactics , how they take months and year for each step as now in October consultation will start.....what the ......reality is that they will not act or delay by a year or two as near election will.....
How is Robertson Finance Minister again? I thought you needed to study some form of finance at university to become a Finance Minister? Or are they just simply just handing these positions out as they go?
Damnit, I should've studied the liberal arts as a Bachelor Degree. I could've been someone and made 'amazing' financial decisions that impact my entire nation! Oh well.
Doesn’t seem to count or matter. For instance we have a Justice minister without a law degree. That just means the hierarchy in that ministry, academic lawyers in other words, are doing the running. Undoubtedly not much different to any of the others, in that the actual ministers are little more than mouthpieces, primed & prompted by the relative bureaucrats.
Well the whole Labour line up looks like they met at a Tuesday night book club and decided to start a political party. Took turns at pulling portfolios printed on strips of paper from a top hat.
*Cheers and yahoos* Mahuta: "Oohhhh look everyone, Grant pulled out the Finance portfolio!"
...and the great Robertson days that he was quick........this is after 15 months of price rise on weekly basis and still no sign ......
https://i.stuff.co.nz/life-style/homed/125932510/houses-for-sale-hit-14…
https://www.nzherald.co.nz/business/too-much-risky-lending-reserve-bank…
Hi Jenee, when one reads the news is clear from what deputy governor of rbnz said that is afraid of any house correction .......why did allow the monster to grow to a level that they are unable to act as if were not aware .....as No intend to control, they by choice allowed it to grow as knows the pulse of the politicians...playing dirty game as has no intent to control.
If house price falls by 5% ( will ve good to calm FOMO) FHB who have bought in last few years will have no effect except those who bought in last one month as before that the price gas grown much more than 5%. Even very recent FHB may feel bad with slight fall but will have no major impact as FHB are in house to stay and mostly for long term unlike spevulators who are in to flip and will be effected. So saying that if house price fall FHB will be badly effected is a lie and manipulation, in fact many to be FHB will be happy as will be able to buy a Home.
Have you ever though on these line that RBNZ very conviently throws FHB in discussion as know that this is one word that all politician will back off.
Try to show concern about FHB but are actually killing the FHB dream of even owning a home. Killing aspiration of many average hard working kiwi is the biggest crime committed by Jacinda Arden and her team including Orr.
Its official, the housing market is not only now to big to let fail, its also to big to try and control in terms of price increases. Well there you have it, TTP did say it was resilient but I think he meant 4 inch amour while the Government and the RBNZ use pea shooters to try to stop it.
It's not against me, I am one of the 'lucky ones' who got in' a few years back.
But it's very much stacked against the young and unpriveleged.
What's your basis for disagreeing, why do you not think that the government has done everything it can with immigration, monetary policy etc.to rig the system in favour of employers and landlords, and the rest of the status quo elite?
Well I am pleased you are doing well House Mouse. I had been listening to conspiracy believers and you seemed to have fallen in to that trap. You are absolutely right that things are tough for some but if you compare the job opportunities now to the 80's and 90's there is far more scope now. Housing is something that time will take care of as in supply. A problem that has been a long time in the making and there is no quick fix.
On what planet is the current lending 'irresponsible'? Govt has basically said that it wants to keep house prices from falling, debt servicing costs as a proportion of disposable income are at an all time low, labour market looks strong for those with experience and skills (i.e. people who own houses), and increases in housing supply are years away. So why exactly wouldn't you trade up to a bigger, more expensive property that will, odds on, make you an extra $100 a day?
If Govt truly wants to quell house price growth, it needs to take some direct action - i.e. minimum standards for rentals by 2022 with compulsory purchase at 2020 prices for those that do not comply.
RBNZ will think about it and do something in October. Load of bull?? If RBNZ asked about it from government 8 months ago, so what did they do for 8 months, no preparation? Did they not prepare anything before they asked in last December? This is an eye wash. Nothing will change as this government enjoys big headlines in the media with no action. The rampant house prices are literally are result of big drop in interest rates and printing free money by RBNZ and government stood as a mute spectator. Is this why we chose this govt, really??
Nope, most people chose this government because of their Covid response. All they had to do was close the boarders, which was at least 2 to 4 weeks to late anyway and they got voted in. Nothing to do with economic policy or anything else really, it came down to the best pick of a bad bunch.
While the govts actions should have been done 10 years ago, this might be a case of doing too much too quickly now. Is it possible that will all these changes they are introducing a bunch of rather large needles to the over blown property market? Not long ago they removed interest deductibility, but we probably haven't waited for long enough to see how that has gone. Introducing another raft of changes before seeing what that has done might be setting us up for an almighty pop, which will see serious migration and serious financial system issues (think Ireland). Too much too late is usually as big of a disaster as not enough early...
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