Lending rules

Tracy Watkins at Stuff reports:

Rules aimed at taking some of the heat out of the housing market and providing greater financial stability could be agreed as early as the middle of the year, Finance Minister Bill English says.

Those rules are likely to include requiring home buyers to have bigger deposits.

Good for landlords as tenants will stay tenants for longer as they save for a deposit!

In a speech to a business audience in Auckland today, English said the Reserve Bank would consult over the next few weeks on proposals giving it a greater ability to influence the amount of lending done by banks and other financial institutions.

These might include requiring lenders to:

* Restrict high-loan-to-value ration lending in the housing sector.

* Hold additional capital on their balance sheet as a buffer during an economy wide credit boom.

* Hold additional capital against loans in specific sectors if risks emerge in those sectors

All well motivated, but my concern is unforeseen consequences.

ANZ chief economist Cameron Bagrie said the mid-year target date suggested “there’s been a lot more thought gone into getting monetary policy a few more mates”.

He was not a fan of rules on the loan-to-value ratio of mortgages, saying it was “akin to throwing a rock into a creek.

“You will find the water gets around the rock.”

Indeed.

Bagrie cautioned against action that might restrict the flow of credit, and said the criteria for using the instruments being proposed needed to be very clear.

He described the housing market as “frothy”, and doubted it was heading into bubble territory.

While some action was needed on the demand side if there was a desire to take heat out of the property market, action also needed to be taken on the supply side given the shortage of houses.

Absolutely. The supply side is key.