Today the Reserve Bank released their response to submissions on the LVR speed limit “macroprudential tool” they intend to implement to curb what they see as risky lending.
If you want to know the full story read the long document over at the RBNZ.
- There were only 20 submissions, mainly from banks. Interestingly, small banks with an average of $100M / month in residential mortgage lending over a rolling 3 month won’t face speed limit
- The RBNZ will restrict the proportion of high LVR lending as opposed to high LVR lending itself – presumably in recognition of the reality that many high LVR mortgages will be to very high earning couples
- There will be a transition period because some banks think they’d breach the rules even if they stopped all high LVR mortgage approvals tomorrow
- There will be an anti-avoidance rule so banks can’t get around the speed limit – the detail can be found in section 7 of the updated BS19 document (Framework for restrictions on high-LVR residential mortgage lending)
- It will take time for banks to process their backlog of pre-approvals if the speed limit is applied and time for them to forecast high LVR loan flow to stay under the limit
- Disintermediation risk is acknowledged – people topping up deposits with credit cards or using multiple second tier loans to resemble a traditional residential mortgage – banks could be hit by anti-avoidance provisions if they try to get around restrictions
There is a lot of stuff that still needs to be worked out by the Reserve Bank and the banking sector. If we think about what the Reserve Bank is trying to achieve – dampening what it sees as risky lending in the housing sector – and then we think about what the government is trying to achieve – every special snowflake moaner being able to afford a house – I have to wonder why, in the light of how Basel III has already impacted the lending that actually matters to growing the economy i.e. commercial and agricultural lending – why they don’t save the expense and complications of this scheme with something simpler?