Australia’s big four banks are about to get a modest bonus from New Zealand’s regulators – an easing in the loan to valuation ratios for home loans.
The decision, while tipped by NZ analysts, came much earlier than expected.
The news saw the prices of the big four banks enjoy modest rises on the ASX. CBA was up 0.8%, Westpac 0.7%, NAB climbed 0.7% and ANZ rose 0.5%.
But the driver of that rise wasn’t the news from the RBNZ, but from Wall Street where banks are getting ready for the Trump tax cuts to be passed later this week (but ignoring the sudden emergence of a possible shutdown in the US government because of debt ceiling problems.
The Reserve Bank of New Zealand said it would ease restrictions on home loans because the country’s housing market is cooling, plus the policies of the country’s new government which are likely to add further downward pressure.
“Domestically, LVR policies have been in place since 2013 to address financial stability risks arising from rapid house price inflation and increasing household debt. These policies have helped improve banking system resilience by substantially reducing the share of high-LVR loans.
“Over the past six months, pressures in the housing market have continued to moderate due to the tightening of LVR restrictions in October 2016,” Acting Governor Grant Spencer said in a media release.
“Housing market policies announced by the Government are also expected to have a dampening effect on the housing market."
The main new change from the Arden government will be a ban on foreign purchases of existing homes which is due to begin in early 2018.
But acting governor Grant Spencer said the change was not reviving the cooling the market. Asked at a Wellington media conference if he was sending a signal that he was backing first time buyers, Spencer urged buyers to show caution.
"We’d say [to buyers], continue to be cautious. The market has moderated. We expect it to continue to moderate.
In other words don’t buy into an easing market.
In its half-yearly Financial Stability Report, released yesterday, the RBNZ said what it termed a “modest easing” of loan-to-value ratio (LVR) restrictions would start from January 1 next year.
As part of the changes, the RBNZ will allow banks to make up to 15% of new loans to owner occupiers at LVRs of more than 80%. That is up from 10% of new lending currently.
Also, up to 5% of banks’ new loans to investors can be at LVRs of more than 65%, compared to 60% currently.
“The Bank will monitor the impact of these changes and will only make further LVR adjustments if financial stability risks remain contained. A cautious approach will reduce the risk of resurgence in the housing market or deterioration in lending standards, Mr Spencer said yesterday.
