NZ home loan limits set to go gradually

Wellington

NEW Zealand central bank's year-old contentious limits on risky house lending are expected to be gradually phased out in the coming year as tame inflation and a slower housing market have reduced the need for them.

For the past year retail banks have been restricted to no more than 10 per cent of new home loans for borrowers with deposits of less than 20 per cent of a property's value - called high loan-to-value ratio lending.

The Reserve Bank of New Zealand reached for the macro-prudential tool to help cool a hot housing market, by slowing housing-credit growth and inflation without having to resort to the blunt weapon of raising rates, which may have stoked an already elevated currency.

Before the rules, low-deposit lending accounted for 25 per cent of banks' home loans, but in September that was 7.3 per cent, and Graeme Wheeler, governor of the Reserve Bank of New Zealand, said that they had helped ease inflation and housing market pressures. "This reduction allowed us to delay the tightening in interest rates, thereby reducing the incentive for any additional capital inflows into the New Zealand dollar in search of higher yields," he told a Bank of International Settlements conference last month.

Annual house price inflation has fallen to about 6 per cent from 10 per cent a year ago, and he said that the limits were worth 25 to 50 basis points of rises in the cash rate. REUTERS