WELLINGTON (CU)_Last month, the Reserve Bank of New Zealand provided ministers with an analysis on interest-only mortgages and debt-to-income ratios which found that one of the most effective tools that can be deployed in order to support financial stability and house-price stability is debt-serviceability restrictions. These restrictions would cap how much an individual can borrow based on his income. The benefit of this is that it would affect investors while having little impact on first-home buyers. However, despite the central bank’s eagerness to add them to its mandate over many years, until now it had not received the sign-off from the government.
Now, the government has finally agreed, as the central bank announced in a statement that Finance Minister Grant Robertson had given the green light to add several debt-servicing restrictions, including debt-to-income limits, to the bank’s memorandum of understanding on macro-prudential policy. However, this was agreed on the condition that its implementation would have a minimum impact on first-home buyers. “We will now work with the Treasury to update the wording for the MoU, which will need to be approved by the minister,” the RBNZ said in its statement.
According to central bank Governor Adrian Orr, although the bank’s tools do not target house prices directly, however, they are aimed at helping ensure prices were in line with sustainable levels. “We believe that a ‘sustainable house price’ is the level that the price would be expected to move towards over several years, reflecting the underlying drivers of supply and demand for housing, including population growth, building costs, land supply and interest rates,” he said.
He further noted that the RBNZ intends to discuss with the industry over the feasibility of implementing these restrictions over the coming months. Nevertheless, a full public consultation, along with a regulatory impact statement, will be launched first, before any decision to implement them is made.
