The Reserve Bank of New Zealand has warned again it is watching signs of accelerating bank lending growth and house price inflation.
The bank noted in its March quarter Monetary Policy Statement (MPS) bank funding costs had declined in recent months, which had reduced retail mortgage rates despite the flat outlook for short term wholesale interest rates.
Wheeler told a news conference after the MPS he was concerned about the rise in high loan to value ratio (LVR) lending. He said about 20% of all lending growth was now in the 80-90% LVR bracket, while a further 10% was in the 90% plus bracket. A Reserve Bank official later said this 80% plus lending was up from around 15% of lending growth early last year.
The bank also average mortgage rates had fallen 45 basis points over the past year as funding costs for banks had fallen because of calmer international markets.
Wheeler later told the news conference he was not concerned that the Reserve Bank may be losing control or traction with its monetary policy in the same way its effectiveness was blunted between 2002 and 2008 by high levels of fixed rate mortgage lending and lending rates that moved independently of monetary policy.
The bank noted that New Zealand bank lending surpassed deposit growth in December on an annualized basis for the first time since early 2009.
“There is indicative evidence that higher loan to value ratio lending has made up a greater proportion of new lending,” the bank said.
“If credit growth continues to pick up, banks may issue into offshore markets with greater frequency,” it said. “While this would increase banks’ reliance on global funding markets, funding costs are the lowest they have been since early 2011.”
The Reserve Bank made no comment in its Monetary Policy Statement about the use of macro-prudential tools to cool the housing market, including a limit on loan to value ratios and higher capital requirements for mortgage lending.
Wheeler later told a news conference the bank continued to consult with retail banks about the tools.
17 Comments
Yes indeed ostrich - the following comment should ring alarm bells;
The bank noted that New Zealand bank lending surpassed deposit growth in December on an annualized basis for the first time since early 2009.
An extension of the leverage practice undertaken by NZ banks, which Moody's recently noted in not so subtle terms:
poses ongoing bank liqiudity issues.
Well it was explicitly stated by a visiting executive from CBA commenting about the proposed fees law suit. Read article
He admitted banks hadn't done a good job in explaining to the public what the cost of safety was. In other words, the big profits they're criticised for making help provide the buffer they need between the deposits they take and the money they lend out to ensure they don't fail and need government bail-outs.
Such unreserved, offhand confidence reflects knowledge of an official declaration, no?
And one element of high lvr's is to keep the music playing - credit growth, first time buyers in, first families up size etc......
They will man the pumps (ride that market sentiment) to delay the below for as long as possible...
First home buyers appear to be deserting the property market, casting doubt on the sustainability of a mooted housing market recovery.
It's generally not great for sustainability when young people are not getting in.
The number of first time buyers entering the market fell to its lowest level in two years in January, according to the latest figures from the Australian Bureau of Statistics.
Read more: http://www.smh.com.au/business/property/first-home-buyers-desert-market-20130313-2g023.html#ixzz2NSWCanbZ Remember, we are talking about the same banks....
Banks create money out of thin air, and lend it into existance. They have a RRR (Reserves Requirement Ratio) at 10% and the property investors are simply leveraging inflation to gain equity while the savers are being fleeced, again and again, year after year.
High leverage is not only profitable (for banks and borrowers) but a necessary part of life. Since the Central Bank have monopoly over the issue of money, and money can only lend into existances, increasing leverage is necessary to keep the house of cards straight.
The total debt is smaller than the total money supply as a result of the fiat system. If the debts are paid off, the system will collapse. The only way is to expoentially increase in borrowing, along with money supply, and that's why we get sustained inflation.
When will ppl wake up and realize the biggest scam in history?
Frostwind - I think you refer to Fractional Reserve Banking Regulations that pertains to the US banking system - even this bank lending restriction has been emasculated by the US Federal Reserve edict to allow the practice of account sweeping into unrestricted money market type savings A/Cs.
Precisely Kimy! Interest cost is the largest for many business the world over.
Banksters are silent partners, without risk, to every indebted business in the world. The business owner carries all the risk, does all the work, and earns less money that it's riskless partner.
Got to love it!
HGW
More money being loaned is a position that people will take. They are taking a bet on Russell Norman being the next Finance Minister and printing money:). Inflate the debt away...............
I was mortgage free for 18 months but I will now take on $200-250K to do a house extension in Greenhithe, Auckland's North Shore. $50K will be savings already invested into the rebuild. Part of that is to fix a few slightly leaky parts of the house, nothing major, so I thought I may as well do extensions at the same time, get better insulation and get the garage attached to the house. After this is done I will still have 70% plus equity in the house so I am comfortable with this loan at sub 6% interest rates. This will take our home from $650-700K to around $850-900K. Up until now we have had one of the worst houses in a very good street. We looked around but there was no where that we liked outside the area.
I admit, I would be nervous getting a 90% loan though on a $6-700K house. The bank said they would lend us $750K if we wanted it. I said no thanks to that amount.
so I thought I may as well do extensions at the same time, get better insulation and get the garage attached to the house
Given the bank is being generous with other people's money why don't you extend the mortgage a little more to fill the garage with an expensive European car or two? You will be doing us a favour by helping to blow out the C/A deficit which will lower the exchange rate, thereby helping parched exporters.
Sorry Moa Man, I am living well within my means. $200K debt with around $1M assets is a pretty safe gearing in my view. If I lost my job I walk out with around $80K plus I have a good car I could sell. My wife also earns good money as well.
Typical jealously of the Labour/Green sycophants who roam this site.
Your comments belong with the Moa - extinct.
I brought the car myself but get a car allowance. It's my fault I have a job that values me and gives me nice perks. BTW, I need the car to visit clients as I am high tech sales industry. So it is part of an employment package. Now, isn't that nice for me:).
BTW Misty one, not jealous at all are you?
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