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Restrictions on low-deposit home loans to stay in place, Reserve Bank announces

The Reserve Bank has decided to keep restrictions on low deposit home loans as the economy continues to face risks, both domestically and internationally.

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Economic uncertainty means the central bank doesn’t want trading banks handing out high risk loans. Source: 1 NEWS

The high loan-to-value ratios were put in place in 2013 and there was some expectation the bank may relax those when it released its November Financial Stability Report this morning.

In the past few years, house price inflation has slowed, particularly in Auckland, and lending standards have tightened.

But because interest rates are so low, the Reserve Bank says there are already signs banks are easing mortgage lending standards.

And so it has decided not to ease them further because they are worried that it’ll lead to high-risk lending.

International risks to the financial system have increased in the past six months, with global growth slowing. Lower interest rates have helped to cushion the New Zealand economy.

But those low rates are starting to have an impact in other areas. Insurance companies are struggling to meet their required buffer rates. And credit unions are starting to operate at a loss and some have had to merge in order to survive.

The economy has also slowed in the last year, with annual economic growth going from 3.2 per cent to 2.1 per cent.