Reserve Bank of New Zealand Tightens Mortgage Lending Rules in an Effort to Overcome Housing Crisis | New Zealand

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The Reserve Bank of New Zealand has announced plans to tighten mortgage lending as the country struggles to cope with the housing crisis.

One of the measures, which will take effect on October 1 after consultations, will include reducing the proportion of loans that banks can provide to tenants with less than 20% of their deposit.

In October, the bank will also begin advising on the introduction of debt-to-income ratio (DTI) limits and minimum interest rates so that 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 Jeff Baskand, Deputy Governor of the Reserve Bank. said in a statement on Tuesday

“We are especially concerned about those who have borrowed in the past 12 months with high LVRs and high DTIs.

“If home prices fall, some buyers may face the possibility of negative equity – which means that the value of their property is below the outstanding balance on their mortgage,” he said.

The announcement was made the day after the New Zealand Human Rights Commission. announced that he was starting an investigation into the housing crisis, calling it a “massive violation of human rights.”

New Zealand home prices have risen sharply over the past decade, with asking prices up 20% in June over the same month last year. according to one recent report

Existing problems with availability, high cost of materials and regulations restricting urban supply are exacerbated by ultra-low interest rates and a faster-than-expected economic recovery from the pandemic.

In March, the New Zealand government announced a set of billion dollar measures aimed at increasing supply and cooling the market, but prices have not stabilized or fallen yet.

Treasury Secretary Grant Robertson said Tuesday that the bank must make sure the changes “did not unduly affect early home buyers.”

“The government has already taken a number of measures to cool the housing market to make house prices more resilient and tip the scales in favor of early home buyers, including extending the brightness test and removing interest deductions,” he added.

“These initiatives will really make a difference. However, there is no silver bullet for housing affordability, and monetary and fiscal policies must work together to achieve a sustainable housing market. ”

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