David Chaplin says debt-to-income multiples among new borrowers in the Auckland region are likely to be increasing as house prices in the region become more stretched. Photo: Chris Loufte.
David Chaplin says debt-to-income multiples among new borrowers in the Auckland region are likely to be increasing as house prices in the region become more stretched. Photo: Chris Loufte.
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The Reserve Bank of New Zealand (RBNZ) has made a heroic fireman-like attempt to hose down the smouldering Auckland property market in its latest Financial Stability Report.
Whether the RBNZ can contain Big Smoke housing risks with its segregated rules for property investors remains moot - but it's worth a crack.
Outside of Auckland, meanwhile, the RBNZ is looking to throw some petrol on the embers.
"For all residential lending outside the Auckland region, the Bank is proposing to increase the existing speed limit for loans with an LVR [loan-to-value ratio] of greater than 80 percent from 10 to 15 percent, to recognise relatively subdued housing market conditions outside Auckland," the report says.
While that's hardly going to set the non-Auckland housing market alight, home-buyers weighing up the relative merits of, say, Ponsonby and Invercargill will have some fresh data to add to their calculations.
Aside from the overheated Auckland market, the RBNZ lists two other major risks that could see the NZ economy tip from its alleged rock-star status down to the street busker level.
Of course, the RBNZ can do little about plunging dairy prices and loose monetary policies in the rest of the world - except keep the local banks' buffers up.
The Financial Stability Report isn't all bad news, though, with some interesting data included concerning New Zealand's post GFC debt repayment habits.
According to the RBNZ, New Zealanders have been assiduously paying off their mortgages in the low-interest years since the financial crisis as measured by net credit growth.
Perhaps, Auckland property owners are simply handing the property torch to the next generation.
For instance, over the last year the RBNZ notes year "there was more than $60 billion of new mortgage commitments, amounting to around 30 percent of existing mortgage debt".
"However, net housing debt grew by only around 5 per cent," the report says.
"This gap between the value of loans being written and net credit growth relates to repayments by borrowers."
Net housing credit is about half the pre-GFC level, the RBNZ says, which might suggest the country is on the road to property prudence.
Or it might not.
"Strong rates of principal repayments by existing borrowers can also disguise a build-up of risk among new borrowers," the report says.
"As discussed [in the report], debt-to-income multiples among new borrowers in the Auckland region are likely to be increasing as house prices in the region become more stretched."
Perhaps, Auckland property owners are simply handing the property torch to the next generation.
