Capturing loan-to-value data in New Zealand – challenges and opportunities
Like many countries, New Zealand experienced rapid increases in both house prices and household debt in the decade leading up to the Global Financial Crisis. While house prices fell modestly during the recession of 2009/10, they remained elevated relative to fundamental metrics such as rents or incomes. By 2013, house prices were rising rapidly again in some parts of the country, particularly Auckland and Canterbury, reflecting both stronger demand and housing shortages. Although the rise in house prices was accompanied by only moderate growth in total household credit, lending undertaken at high loan-to-value ratios (LVRs in excess of 80 percent) had risen to nearly a third of all new housing loan commitments.
An A to Z of loan-to-value ratio (LVR) restrictions
The Reserve Bank recently announced restrictions on high loan-to-value ratio (LVR) lending. The restrictions take the form of a ‘speed limit’ that requires banks to restrict new residential mortgage lending at LVRs of over 80 percent to no more than 10 percent of the dollar value of their new residential mortgage lending. The speed limit on high-LVR lending is designed to slow the growth in house prices and housing credit, and mitigate associated risks to the financial system and the broader economy. This article sets out the framework for LVR restrictions, and explores the Reserve Bank’s early experience in operating them.
Financial sector amplification and credit cycles in New Zealand
This article explores some of the channels through which the financial system may amplify business cycles in New Zealand. Such amplification (‘procyclicality’) has been of interest for decades when considering financial booms and crises. There has been particular interest recently in understanding mechanisms through which the financial sector contributed to both the expansion of credit in 2003-07 and the subsequent pressure to reduce leverage during the financial crisis. This article focuses the discussion on New Zealand with emphasis on the credit boom of 2003-07 and the recent fall in credit growth, though the latter has been modest by international standards.