Mortgage brakes may be released this year - Stuff
The Reserve Bank says its limits on low-deposit home loans will stay until late this year, dousing expectations the temporary measures could go soon.
The central bank said that loan to value ratio (LVR) limits brought in last year “are achieving their purpose” with signs the housing market is cooling down.
“Without the Loan to Value Ratio restrictions, annual house-price inflation might be running some 2.5 per cent higher,” Reserve Bank deputy governor Grant Spencer said today.
The limits on low-deposit loans have sharply reduced the amount of lending in that part of the market, hitting first home buyers especially. The rules mean banks have to limit low-deposit loans to no more than 10 per cent of new- mortgages.
Westpac Bank economists said the Reserve Bank had been expected to change the limit soon or start talks about when the limits might be dropped.
Spencer’s comments were seen as meaning the LVR limits would not be changed in any way until late this year, Westpac said.
But that did set an indicative timetable for when the LVRs could be removed, possibly next year, unless the housing market takes off again.
Westpac chief economist Dominick Stephens said: “In our view that is unlikely to happen, with interest rates rising as they are.”
Spencer said the financial system was now less vulnerable to an adverse housing shock and banks were now less exposed to potential credit losses as the interest rate cycle turns upwards as a result of the LVRs.
The LVRs were temporary, but Spencer said that before removing them the central bank wanted to be sure the housing market was cooling after interest rate increases; and that immigration pressures were not causing a resurgence of house price pressures.
“It will take some time to gain this assurance,” he said.
“At this stage we consider the earliest date for beginning to remove LVRs is likely to be late in the year.”
The bank has said the housing market was cooling “gradually”, but risks remained, including the present levels of migration. It also warned borrowers to expect floating mortgage rates to head towards 8 per cent in the next couple of years.
But how far and fast rates would rise depends on the exchange rate and the housing market.
Spencer, said today that the volume of house sales has dropped considerably across the country, other than in Canterbury, and the slowdown in volume had also been reflected in prices.
The supply of homes had started to improve, with a recovery evident in residential building, he said.
In Auckland, progress was being made in freeing up the supply of buildable land and improving the consenting process. In Canterbury, the replacement of severely damaged homes was well in train after a slow start.
However, the housing shortage remained large, and significant increases in building were needed in Auckland and Canterbury over the next three years.
There were many parts to the housing market equation – and many risks.
“Probably the major risk at present is the outlook for net immigration, in part due to reduced departures of New- Zealand citizens,” Spencer said.
“We are forecasting net immigration to reduce gradually as economic conditions improve in Australia.
“We’ve started raising the official cash rate, with the aim of forestalling general inflation pressures in the broader economy.
“Floating mortgage rates could be 7 per cent to 8 per cent in two years’ time, closer to their average of the past 20 years.”
“The extent and timing of interest rate increases will depend on a number of uncertain variables, in particular the exchange rate and housing market pressures.”