Releasing its latest financial stability report into the country’s banking and finance sector, the Reserve Bank of New Zealand says the country has come through the COVID pandemic well, but the real risks are from the continuing historically low global interest rates.
These are fuelling “increased risk taking and higher asset prices”, with New Zealand’s housing boom stubbornly continuing.
The RBNZ flagged up the possibility of further tightening of loan-to-value ratios.
“A high proportion of new lending has had high debt-to-income and loan-to-value ratios (LVR). This makes recent borrowers more vulnerable to a rise in mortgage rates, and exposes households and the financial system to a decline in house prices,” said RBNZ Deputy Governor Geoff Bascand.
“We will be watching how market conditions respond to the government’s recent policy changes. If required, we are prepared to further tighten lending conditions for housing using LVR requirements or additional tools that we are assessing,” Bascand said.
Those additional tools include debt-to-income ratio restrictions and restricting interest-only lending, which the RBNZ is expected to report back to Robertson on later this month.
If the bank is able to use a new tool, DTRs would be the obvious choice, Bascand said, but warned implementing would be "complex" and "take time to work through". LVRs remain the most “straightforward” tool.
Bascand fronted both the press conference following the FSR release, and the appearance later in the day before the finance and expenditure select committee as RBNZ governor Adrian Orr was unable to attend due to an unspecified illness.