With the Reserve Bank meeting later today for Glenn Stevens swan song as governor, don’t expect it or its fellow regulator, APRA to try a bit of Kiwi macro-prudential controls to whip the local property market into shape and end the thrills and spills in Sydney, Melbourne, and lately Brisbane and Canberra.
The RBA has shied away from following the Kiwis down these macro controls route, after all the latest changes, confirmed yesterday by the RBNZ are the third in four years!
Rate cuts by the RBA have kept alive the madness that at times characterises the property markets in Sydney and Melbourne in recent months. Investor activity is definitely slowing, but hasn’t gone away and some very silly prices are being paid for inner city dwellings in particular.
And the rate cuts have helped revise the Brisbane and Canberra markets this year.
But over in Kiwiland they have a property market that seems to be on the verge of out of control as the RBNZ cuts rates (like the RBA) in response to weak inflation and a strongish currency.
After two round of macro controls failed to choke off the Auckland boom, and redirect investor interest to other regions and cities, the RBNZ said in July it was looking at much tougher rules to apply across all of the country and not just in the Auckland area.
It was an admission the previous changes to try and spread the interest outside ofAuckland had failed.
The RBNZ confirmed that new rules tighten restrictions on bank lending to residential property buyers throughout New Zealand.Nominally they start on October 1, but the RBNZ said the banks had decided to apply them right away (in fact the banks – including our big four, ANZ, Westpac, NAB and Commonwealth) have been applying them since the July announcement by the central bank.
And the rules are tough – in nearly all cases, investors will have to have a deposit of at least 40%, meaning the loan will only be for 60% of the value of the house, while owner occupiers will generally need a minimum deposit of 20%.
The existing exemptions to LVR restrictions will continue to apply under the new rules and have been extended to include borrowing for a newly-built home, or to do work needed for a residence to comply with new building codes and rental-property standards.
From October 1, NZ banks will be able to have only 5% of loans to residential property investors to those with a deposit of less than 40%.
While the latest round of restrictions mainly target investors, there is a small tightening of rules for home owners, by removing the differential between Auckland and the rest of the country for owner-occupier loans.
At the moment, banks can lend 15% of owner-occupier loans outside Auckland to borrowers with less than 20% deposit, compared to 10% of loans in Auckland.
However from October 1 the limit with be 10% across New Zealand as a whole.
