Australia’s big four banks face a sharp contraction in their home lending activities across the Tasman after the Reserve Bank of New Zealand signalled a new round of clamps on Tuesday morning.
The Commonwealth (ASB), NAB (Bank of NZ), Westpac and ANZ dominate the Kiwi banking sector with a combined market share put at 80%.
The new changes will see the amount of highly leveraged home lending slashed by 50% – a move that will bring much of the home loan market to a halt and end the dreams of thousands of would-be Kiwi buyers.
The RBNZ has been gradually tightening restrictions on home lending to try and cool a price and lending boom that echoes the surge in Australia.
It has tightened loan to valuation ratios, toughened the rules over income and debt servicing and made it harder to get a high leverage loan.
Earlier this year the RBNZ said it proposed to go further with a series of new restrictions after talks with the country’s Finance Minister about the overheating housing market.
In a statement on Tuesday morning those new rules were laid out for the first time, with a start date of October 1 this year (the new financial year for the ANZ, Westpac and NAB but not the CBA which ruled its latest financial year off on June 30).
In the statement the RBNZ’s deputy government, Geoff Bascand said “We propose to restrict the amount of lending banks can do above an LVR of 80 percent to 10 percent of all new loans, down from 20 percent at present.
“We will begin consulting on this change later this month with a view to introducing it from 1 October 2021.
“We also intend to consult in October on implementing Debt-to-Income (DTI) restrictions and/or interest rate floors in an effort to provide further comfort that borrowing is sustainable.
“Introducing DTIs will take longer, whereas the banking industry has informed us that interest rate floors could be implemented more quickly.
“Consultation will be focused on operational feasibility and possible calibration of these tools, including their impacts on investors and first home buyers”
“We are focussed on ensuring borrowers are resilient to a range of future economic and financial conditions. We are particularly concerned about those who have borrowed in the past 12 months at high LVRs and high DTIs.
“If house prices were to fall, some buyers could face the possibility of negative equity – which means the value of their property is below the outstanding balance on their mortgage,” Mr Bascand said.
“We’ve already made adjustments to Loan-to-Value Ratio (LVR) restrictions to partially manage this risk, but we haven’t seen a sufficient reduction in risky lending.”
