MNI POLICY: RBNZ Wary of Renewed Housing Risk

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of New Zealand warned Wednesday that

housing risks "may be increasing again" and has left its loan to value ratio

(LVR) restrictions unchanged, saying it was "wary" of adding more stimulus.

     According to the bank's November Financial Stability Report, the financial

system vulnerabilities "remain elevated", largely due to high levels of

indebtedness.

     Earlier this year, the RBNZ hinted that LVR's, originally introduced in

2013 to contain rapid house price rises, could be relaxed but have decided

against any move.

     "House prices are up by just 3.9% in the last year, but there has been a

marked acceleration in recent months as mortgage rates have fallen sharply and

the threat of a capital gains tax has been removed," the RBNZ Statement said.

     "The RBNZ will be wary of adding more stimulus at this point," it added.

     Under the LVR regime, banks are limited to making no more than 20 percent

of their residential mortgage lending to high-LVR borrowers with a housing

deposit of less than 20% than purchase price.

     Banks are also restricted to lend no more than 5% of their mortgage lending

to high-LVR investors in residential property with deposits of less than 30%.

     The RBNZ has cut interest rates twice this year down to 1.0%, and - under

its prudential responsibilities - also has the power to adjust LVR rates to

control the housing market.

     While today's statement noted that the LVR restrictions had reduced "more

excessive" household lending, the Bank said it was also concerned that prolonged

low interest rates could lead to a resurgence of higher risk lending.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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