New Zealand’s reserve bank has announced it will tighten mortgage lending as the country struggles to cope with its real estate crisis.
One measure, which would come into effect on October 1 after consultations, is to reduce the proportion of loans that banks can extend to owner-occupiers with less than 20% of their deposit.
In October, the bank will also begin advice on implementing debt-to-income (DTI) constraints and interest rate floors to ensure borrowers can afford to service their mortgages.
“We are focused on ensuring that borrowers are resilient to a range of future economic and financial conditions,” said Reserve Bank Deputy Governor Geoff Bascand said in a statement on Tuesday.
“We are particularly concerned about those who have borrowed at high loan-to-value ratios and high DTIs in the past 12 months.
“If house prices fall, some buyers could face negative equity – meaning their property is worth less than their mortgage outstanding balance,” he said.
The announcement came a day after the New Zealand Commission on Human Rights announced that it would initiate an investigation entered the housing crisis and described it as a “massive human rights failure”.
House prices have skyrocketed in New Zealand over the past decade, with asking prices up 20% in June from the same month last year. according to a recent report.
Existing issues with affordability, high material costs, and regulations limiting urban supply have been exacerbated by extremely low interest rates and a faster-than-expected economic recovery from the pandemic.
In March, the New Zealand government announced: a series of billion dollar measures to try to increase supply and cool the market, but prices have yet to stabilize or fall.
On Tuesday, Treasury Secretary Grant Robertson said the bank should ensure the changes “do not unduly affect first-time homebuyers.”
“The government has already taken a number of steps to cool the housing market to make house prices more sustainable and to tilt the balance in favor of first-time buyers, including extending the bright line test and eliminating interest deductibility,” added he added.
“These initiatives will make a real difference. However, there is no panacea for housing affordability, and monetary and fiscal policies must work together to achieve a sustainable housing market. “