By Stephen Wright
WELLINGTON, New Zealand – The Central Bank of New Zealand has said it plans to further tighten residential mortgage lending as the previous restrictions did not result in a significant reduction in loans, which it considers risky.
The Reserve Bank of New Zealand said on Tuesday that landlord-tenant mortgages, which are considered the most risky, will be capped at 10% of new loans, up from 20%. It says that the changes will be made from October 1 after consultation.
These measures are likely to disadvantage aspiring home buyers who are already struggling to find affordable properties after the average home price soared about 30% last year. Lending rate limits apply to mortgages that exceed 80% of the value of the property.
Record low interest rates fueled by the pandemic and the limited supply of new homes have exacerbated New Zealand’s problem that home ownership is becoming unaffordable for many.
“We are focused on ensuring that borrowers are resilient to a range of future economic and financial conditions,” RBNZ Deputy Governor Jeff Baskand said in a statement.
The central bank is “particularly worried” about last year’s borrowing, which could be vulnerable to default if house prices fall, he said.
The RBNZ said it will also begin consultations in October on imposing limits on debt-to-income ratios or minimum interest rates as a further step to limit mortgage lending.
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