Key cagey about loan to value ratios, but you can feel the ill wind blowing

Prime Minister John Key says he “potentially” supports income-related restrictions on mortgage lending.

Mr Key said increasing supply was still the main issue to dampen the “overheated” Auckland property market, but the Reserve Bank had some options to address the demand side.

Investors account for about 46 per cent of property transactions in Auckland.

Mr Key – who again resisted labelling the Auckland housing situation a “crisis” – said the Government had introduced the “bright line” test to target investors, but the Reserve Bank could take further action.

“I think it’s one of the issues the Reserve Bank can give some consideration to, because they can target groups, just like they did with their LVR ratios, and they are looking at income ratios, they have the capacity to look at that,” Mr Key told Radio New Zealand.

Debt-to-income restrictions are already used in the United Kingdom, where most buyers cannot get a mortgage higher than 4.5 times their annual earnings.

Asked if he would support similar restrictions here, Mr Key said, “potentially”.

It is clear that government have been trying to stay out of the financial side of the housing market.  After all, most of the Auckland property owners will absolutely crucify National for instigating a drop in their property values.  

Because most lending that is high debt-to-income is to investors, the Reserve Bank’s view is that, set at the right threshold, debt-to-income restrictions will impact investors more than owner-occupiers.

The Government has a Memorandum of Understanding (MoU) with the Reserve Bank on which tools it can use to curb mortgage lending. The MoU would have to be amended before an income cap could be introduced.

Bank of New Zealand on Friday joined ANZ Bank New Zealand and Westpac’s local unit in restricting mortgage lending for foreign property buyers, following similar steps by their Australian parents.

Mr Key told Newstalk ZB this morning that bank chief executives had told him that lending to such buyers was “extremely low”.

“Blunty, I’m not putting it in the category of a stunt, but my understanding is the amount of lending that they do to non-related foreign buyers is very low.”

National will continue to fart around the edges and hope like hell nothing too serious happens in the run-up to the 2017 elections.


– Nicholas Jones, NZ Herald

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