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NZ housing credit growth slows as central bank lending curbs bite

Thursday 22nd December 2016

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Housing credit growth continued to lose momentum in November, according to fresh figures from the Reserve Bank of New Zealand, as the latest investor loan-to-value ratio (LVR) restrictions look to be weighing on borrowing.

Record migration and low interest rate have bolstered the country's housing market, prompting the RBNZ to tighten up lending rules to reduce the risk to the nation’s financial stability. New restrictions on lending to property investors with high LVRs came into play Oct. 1.

On an annual basis, housing credit growth lifted 9 percent in November versus 9.1 percent in October and 9.2 percent in September and August. 

“The Reserve Bank of New Zealand’s latest LVR lending restrictions appear to be weighing on investor demand,” ASB Bank economic Kim Mundy said in a note.

The investors’ share of new lending was 27 percent in November, its lowest level since the data series began in August 2014, down from a high of 38 percent a few months ago. 

Mundy expects the pace of housing credit growth to continue to slow, with further slowing in the housing market. “As a result, we expect the Reserve Bank of New Zealand to leave the official cash rate on hold for the foreseeable future,” said Mundy.

The central bank cut the official cash rate to a record low 1.75 percent in November and signalled the end of the easing cycle.

Elsewhere in the lending figures, consumer credit growth continued its recent uplift, with annual lending up 3.4 percent and back to growth rates seen earlier in the year. Business credit growth fell sharply in November, with annual lending growth dropping to 5.8 percent in November from 8 percent in October. 

Annual agricultural credit growth was 4 percent above year-ago levels in November.  However, shortages in dairy farmers’ cash flows until mid-2017 should keep a floor under credit demand over this time, said Mundy.

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