'Cautious' Joyce seeks cost-benefit on debt-to-income lending rules

Finance Minister Steven Joyce wants a full cost-benefit analysis on proposed debt-to-income home lending limits and public consultation will be conducted by the Reserve Bank before any decision is made on the potential use of the additional macro-prudential policy tool.

New Zealand's housing market has been running hot, spurred by record high immigration and record low interest rates. Over the past several years, the central bank has introduced loan-to-valuation ratios on borrowing for housing, which it considers it a key risk to financial stability.

In November, central bank governor Graeme Wheeler said the bank had asked then Finance Minister Bill English to approve an additional macroprudential tool – a debt-to-income ratio restriction – that could be used "if housing market imbalances were to deteriorate further." The latest data from government valuer Quotable Value showed New Zealand residential property values continued to rise in January, with strong growth in regional towns close to main centres like Auckland, Wellington and Queenstown. Debt-to-income limits are designed to regulate the amount of debt that a mortgage borrower can access relative to their incomes.

In a statement today, Mr Joyce noted that Mr Wheeler "remains concerned" about the levels of debt in some households in the context of recent increases in house prices. However, "the bank has a number of regulatory tools available to it to address systemic risks it identifies and I am cautious about adding further tools."

He said that consistent with good regulatory principles, "a full cost-benefit analysis and consultation with the public should occur before I consider whether to amend the memorandum of understanding on macro-prudential policy." To implement debt-to-income limits, the current memo between the Finance Ministry and the central bank, inked in 2013, would have to be amended.

Mr Joyce said he would be particularly interested to know what the impacts could be on first home buyers. The central bank is gathering information about the DTI levels that borrowers are obtaining and assessing the potential case for the use of debt-to-income limits.

The bank has indicated that public consultation will commence in March and occur during the first half of 2017, he said.

On Tuesday, the central bank announced Mr Wheeler won't serve a second term and will leave his post immediately after the September 23 general election. He will be followed out the door by his deputy, Grant Spencer, who will fill in as acting governor on a temporary basis until March next year, while the next government hunts out a replacement.

(BusinessDesk)