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House builders hurt by looming RBNZ mortgage lending restrictions, seek exemptions

Friday 27th September 2013

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House builders may be hurt by Reserve Bank mortgage lending restrictions which take effect next week and the nation's building lobby group wants new home construction to be excluded from the rules.

Building companies that specialise in the low-deposit new home market have lost potential clients, with some having to lay off staff and restructure their operations ahead of the change, Warwick Quinn, chief executive of the Registered Master Builders Federation, said in a statement.

Restricting the supply of new homes is counterproductive when more affordable homes are needed to stabilise house price growth, Quinn said. Some 3,000 new homes could be affected, and the drop in building work puts construction firms at risk of failure, Quinn said.

Reserve Bank Governor Graeme Wheeler is imposing restrictions from October which will limit high loan-to-value ratio lending to just 10 percent of banks' home loan portfolios. He aims to stifle demand and take some heat out of the Auckland and Christchurch housing markets, which have been bubbling away due to a lack of supply. Wheeler reiterated that the country's rising house prices are one of his biggest challenges, in the central bank's 2013 annual report released today.

"Our main concern is that rapidly increasing house prices increase the likelihood and the potential impact of a significant and disruptive fall in house prices at some point in the future - particularly in a market that is already widely considered to be over-valued," Wheeler said.

Some 6,000 to 8,000 low-deposit first home buyers will probably fail to get a loan under the new restrictions, Finance Minister Bill English said in response to a parliamentary question yesterday.

The impact of the restrictions on first-home buyers has become a political football, and ASB Bank, which was aggressively targeting that space ealier this year, this week canned pre-approvals for low-equity loans.

Prospective borrowers should talk to their banks about their individual needs and circumstances, New Zealand Bankers' Association chief executive Kirk Hope said in a statement.

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