Loan-to-value restrictions may boost other parts of the New Zealand property market as buyers turn their attention away from Auckland, says BNZ chief economist Tony Alexander.
It has been suggested that the new restrictions – to be imposed on October 1 – could quash markets around the country that are only just getting off the ground. Most regional centres are only experiencing price growth of less than 5% year-on-year.
But Alexander said the restriction, which will force banks to lend only 10% of their total loan books to borrowers with deposits of 20% or less, would hasten price appreciation outside the biggest city, rather than drive prices down.
“Some buyers will shift their attention out of Auckland to other, cheaper, parts of the country where their deposit will go further so the Reserve Bank move will accelerate the spreading of Auckland and Christchurch house price gains to the rest of New Zealand. The spread of ultra-fast broadband will encourage this population spread also to some degree.”
Banks would likely lend their 10% to those prepared to pay a premium for it, Alexander said.
He said the restrictions were an experiment that would eventually be acknowledged as not as effective as a monetary policy instrument. They would cause a catch-up period of official cash rate rises that could send the New Zealand dollar to very high levels, hurting exporters.
“The world remains a very uncertain place and that means businesses and households should take great care with the amount of debt they take on and the proportion of that debt left at floating interest rates.”