Trade Minister David Clark defends tougher scrutiny of borrowers as housing affordability hits new low

Clark presented a planned inquiry into new home loan regulations amid fears banks were taking too hard a line with the guidelines.

“This review started a few weeks after problems emerged,” he said. “We want to make sure this legislation works as intended when National, ACT and all the other parties in this Parliament supported it.”

To make things worse

In addition to the CCCFA changes, the Reserve Bank tightened lending restrictions in November, with a 2013 measure known as the loan-to-value ratio (LVR).

LVRs were removed in response to the economic impact of COVID-19 in 2020, then reinstated in March last year.

Banks can now only lend 10% of their new loans to homeowners wishing to borrow more than 80% of a home’s value. For investors, this is a maximum of 5% of new loans to borrow more than 60% of a property’s value.

According to REINZ, currently 48% of household income is required to service an 80% LVR mortgage, based on average property value, with a mortgage term of 25 years. It is up from 33% in 2020.

The Reserve Bank raised interest rates to cool the housing market – a fire it started after cutting interest rates to record lows to keep money flowing during the downturn economics of COVID-19.

SBA chief economist Nick Tuffley said interest rate hikes are likely to continue steadily in 2022, even as New Zealand braces for the impending wave of Omicron.

“The reality is that inflationary pressures have intensified in the three months since” the Reserve Bank raised interest rates, Tuffley says.

The price of goods and services in New Zealand rose 5.9% in the last three months of 2021 compared to the same period in 2020, according to Stats NZ. This is the biggest jump since an annual increase of 7.6% in 1990.

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