New homes exempt from lending restrictions

Registered Master Builders Federation and Certified Builders Association applaud Reserve Bank’s decision.

After taking building industry concerns into account, the Reserve Bank has decided that new home builds will be exempt from the new lending restrictions imposed on 1 October 2013.

The restrictions dramatically reduce the amount of high-LVR loans the banks can write, which raised concerns among several building organisations that the number of homes being built would be reduced, affecting the Government’s efforts to increase the supply of new homes to help curb house price inflation.

The Registered Master Builders Federation (RMBF) had said the central bank’s policy could jeopardise the construction of up to 5000 homes a year and it was seeing an increased number of planned new builds cancelled as a result.

In December, Reserve Bank deputy governor Grant Spencer said the exemption had been decided upon after consultation with the industry.

“While high-LVR [loan-to-value ratio] loans is only around 1% of total residential lending, it finances around about 12% of residential building activity,” he said.

“This exemption means that low-deposit lending will fall outside the 10% speed limit if it is financing the construction of a new house or apartment.”

Mr Spencer said the new exemption would apply to all loan applications for new residential builds from October 1.

“This exemption will help to support the supply of new housing and, in doing so, reduce some of the pressure arising from excess demand in the New Zealand housing market,” he said.

RMBF chief executive Warwick Quinn praised the Reserve Bank for being open to addressing the issue.

“The Reserve Bank was very professional in its approach and willing to listen all the way through,” he said. “I think the way they’ve approached it and their open-mindedness to the information we were providing them should be applauded.”

He said retail banks did not have quality data on how much lending was done for new builds, while RMBF’s independent research had been able to show the impact it could have.

He said the exemption could see more people looking at building their first home than previously.

Certified Builders Association of New Zealand (CBANZ) chief executive Grant Florence also applauded the Reserve Bank for listening to industry feedback and responding accordingly.

In November, Mr Florence said CBA was concerned that the LVR restrictions were having a major impact on sales enquiries, which would ultimately impact future building activity across New Zealand.