New Zealand's central bank announced plans to stiffen up mortgage lending standards, as the country continues to wrestle with its housing dilemma. They are looking at furthering limits to high loan-to-value ratio borrowing, debt-to-income caps, and introducing an interest rate floor - this series of new measures would be applied in early October.
"We are focused on ensuring borrowers are resilient to a range of future economic and financial conditions,” reserve bank deputy governor Geoff Bascand said in a statement this week.
“We are particularly concerned about those who have borrowed in the past 12 months at high LVRs (loan-to-value ratios) 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,” he added.
The announcement came just a day after the New Zealand human rights commission declared it was launching an investigation into the country's housing crisis, while calling it a "massive human rights failure"
House prices have skyrocketed in New Zealand over the past decade - asking prices jumped by 20 per cent in this past June, compared to the same month of last year. Existing concerns regarding affordability, ever-increasing costs of materials as well as low urban supply, blended with low interest rates and a quicker than expected economic bounce back.
Back in March, the government announced several measures, costing billions of dollars, to boost supply and slow the market - prices have yet to steady, though. Earlier this week, finance minister, Grant Robertson, implored that the bank should ensure the changes did not “unduly impact first homebuyers”.
“The government has already put in place a number of measures to cool the housing market to make house prices more sustainable and tilt the balance in favour of first homebuyers, including extending the bright-line test and removal of interest deductibility,” Robertson added.
“Theses initiatives will make a real difference. However, there is no silver bullet to housing affordability and monetary and fiscal policy need to work together to achieve a sustainable housing market.”