New Zealand reserve bank to toughen mortgage-lending rules in bid to tackle housing crisis

New Zealand’s reserve bank has announced plans to tighten up mortgage-lending, as the country struggles to tackle its housing crisis.

One measure, which would come into force from 1 October after consultations, will involve reducing the portion of loans banks can make to owner occupiers with less than 20% of their deposit.

In October the bank will also begin consulting on implementing debt-to-income (DTI) restrictions and interest rate floors to make sure that borrowers can afford to service their mortgages.

“We are focused on ensuring borrowers are resilient to a range of future economic and financial conditions,” reserve bank deputy governor Geoff Bascand said in a statement on Tuesday.

“We are particularly concerned about those who have borrowed in the past 12 months at high LVRs (loan-to-value ratios) 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,” he said.

The announcement came a day after New Zealand’s human rights commission announced it was launching an inquiry into the housing crisis, labelling it a “massive human rights failure”.

House prices have rocketed in New Zealand over the past decade, with asking prices up by 20% in June compared to the same month last year, according to one recent report.

Existing problems with affordability, high costs of materials and regulations constraining urban supply have been compounded by ultra-low interest rates, and a faster-than-expected economic recovery from the pandemic.

In March, the New Zealand government announced a set of billion-dollar measures to try to increase supply and cool the market, but prices have yet to stabilise or fall.

On Tuesday, the finance minister, Grant Robertson, said the bank should make sure the changes did not “unduly impact first homebuyers”.

“The government has already put in place a number of measures to cool the housing market to make house prices more sustainable and tilt the balance in favour of first homebuyers, including extending the bright-line test and removal of interest deductibility,” he added.

“Theses initiatives will make a real difference. However, there is no silver bullet to housing affordability and monetary and fiscal policy need to work together to achieve a sustainable housing market.”