PHOTO: Photo: RNZ / Dom Thomas
Reserve Bank governor Adrian Orr says the central bank wants to introduce debt to income ratios in New Zealand.
It comes in the wake of a letter from Finance Minister Grant Robertson to the RBNZ suggesting a change to the rules under which it operates, to take heed of the impact of any monetary policy on house prices.
Robertson wants the central bank to become more involved in checking the skyrocketing price of housing in New Zealand.
Earlier in November the RBNZ announced a reintroduction of Loan to Value ratios (LVRs) next year to reduce the growth of low-deposit home loans.
They were removed in May to encourage home-buyers and lending. RBNZ will consult on the changes next month.
Orr told Morning Report on Thursday the level of LVRs would be consulted on.
“We’ve announced what we will be talking to the banks about. We have not physically put the ratios in yet but the good news is the banks have moved in advance anyway.
“Part of that consultation (is) yes we can consider the levels that we need to manage the financial risk posed.”
Asked if LVRs needed to be higher to curb property speculation, Orr said: “Well I think it’s important to understand the reason why we consider loan-to-value ratios. That is really about making sure there is not excess leverage or excess debt borrowing in the housing market because that’s where households – be they owner-occupiers or investors – can find themselves in trouble.
“More importantly, if banks are doing a lot of it, it becomes a very concentrated part of a bank loan book and that means if unemployment rose or interests rates increased and people can’t service that debt it becomes the banks’ problem and they have too much skin in the game.
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