Central bank should force banks to “reprice” interest-only and investor loans, economists say
Economists at Kiwibank are calling on the Reserve Bank of New Zealand (RNBZ) to do more to rein-in the country’s red-hot housing market – and that includes pushing banks to “reassess” the risks associated with home loans and reprice interest-only and investor loans.
In a recent report, Kiwibank noted that successful measures to contain the COVID-19 pandemic had led to a renewed sense of optimism in New Zealand’s economy, with more firms saying they expect economic activity to “remain strong.”
Read more: NZ house prices are through the roof: Who's to blame?
However, with the country’s housing market running rampant, the bank said that the next best step for the RBNZ is “a reassessment, and bank repricing, of the risk associated with home loans.”
“The risk weighting on home loans could be adjusted, to better reflect the higher risk associated with interest-only and investor loans,” said Kiwibank. “Applying a higher risk-weighting on investor mortgages, forces banks to hold more capital against those loans, and ultimately price them differently. Someone walking into a bank with a 30% deposit, to upgrade their home, should receive a lower interest rate than a leveraged investor buying their fifth investment property on interest only.”
However, the bank also warned that any tweaks to mortgage rates “won’t fix the housing problem, not even close,” arguing that the government should continue to find ways to tackle the country’s housing shortage.
“Attacking demand is not the answer,” said Kiwibank. “Fuelling supply is the answer. And fuelling supply is more a fiscal responsibility. The government must step up, in support of the councils, to unlock land, build the infrastructure, and provide long-term plans to tackle our chronic housing shortage. A multi-pronged approach that provides certainty is needed to channel resources into housing development.”
