The Reserve Bank will decide on Thursday whether to cut the Official Cash Rate to lift inflation back into its 1-3% target zone. It will have to weigh up the risk that lower mortgage rates will add to the housing market heat generated by the spreading of Auckland's 'halo' around the country, and therefore adding to the financial stability risks of over-valued and fast-inflating housing markets.
But it did appear to get a little help from the country's biggest bank late on Friday afternoon. ANZ announced a tightening of its lending criteria across the country for both investors and owner occupiers who use mortgage brokers. The policy changes appear likely to hit rental property investors hardest, and it may also add to the angst around supply shortages, given it also restricts those investors' ability to buy bare sections and apartments off the plan.
Whether the Reserve Bank had given a nudge and a wink to the bank to slow its lending growth is also unknown, but the latest Reserve Bank figures show a recent acceleration in lending to the fastest rates since mid-2008 and that investor lending in Auckland rose 48% to NZ$1.623 billion in April from February and made up 46% of the lending in Auckland.
A pre-emptive slowdown in lending by banks ahead of mooted new lending controls would also be consistent with what happened before the first two rounds of Loan to Value Ratio controls in November 2013 and November 2015 as the Reserve Bank moved to ensure banks stuck to the spirit of the impending changes and avoided a last minute rush of lending before new rules applied.
ANZ tightened its lending criteria through mortgage brokers for rental property investors and owner-occupier borrowers by reducing its Loan To Value Ratio limits, and by stopping lending to investors wanting to buy sections and apartments off the plan.
The move, which may slow development of new rental properties, follows news that total bank mortgage lending growth across New Zealand rose to an annual rate of 8.3% in April, which was the fastest growth rate since mid 2008 and four times faster than wage growth.
ANZ communicated the changes to mortgage brokers on Friday afternoon and a spokesman confirmed the changes to me.
"We are making these changes to ensure that ANZ is appropriately positioned in the current housing environment, taking into account supply pressure in certain areas and ensuring we continue to support New Zealander's financial interests," ANZ's Head of Mortgage Adviser Distribution Baden Martin said in a memo to brokers.
ANZ said it had reduced the maximum LVR for owner-occupier borrowers in Auckland to 85% from 90% and had reduced the maximum LVR outside Auckland to 90% from 95%.
It also said it had removed the combined collateral exemption for rental property investors in Auckland, which meant the maximum for new lending to Auckland investors would now be 70% of the value of the property. Previously, ANZ had allowed investors to spread their equity across their portfolio to ensure their combined loan to value ratio was under the Reserve Bank's limit for Auckland investors of 70%, which was applied from November last year. This meant some new loans were for LVRs over 70%, but were under 70% when considered right across an investor's portfolio.
It said pre-approvals for lending over 80% would now only be available to existing ANZ customers with three months of bank statements, while new customers could only apply if they had a signed sale and purchase agreement.
ANZ also reduced the maximum LVR for lending that was exempt from the Reserve Bank's LVR rules (new builds and refinancing) from 95% to 90%.
Investor lending for sections and off-the-plan apartments stopped
But the biggest change of interest to property developers and market observers hoping for new housing supply was ANZ's change to its criteria for new homes and sections.
"Residential Investment Lending is not available for the purchase of bare land (including where the intention is construction or turnkey). We will still consider construction and turnkey lending for Owner Occupiers," ANZ said.
ANZ spokesman Stefan Herrick later confirmed the change in policy also applied to rental property investors applying for loans for apartments being bought off the plan.
"The changes are ongoing fine-tuning to our lending rules to take account of current market conditions," Herrick said via email.
In other economic and financial news...
The US Bureau of Labor Statistics reported 38,000 jobs were created in May, well below forecasts for growth of around 155,000 and well below the 123,000 seen the previous month. Financial markets reduced their expectations for further US rate hikes later 2016, including ruling out the prospect of another rate hike at the Federal Reserve's next rate setting meeting on June 14/15.
The New Zealand dollar rose more than two US cents over the last three days, hitting a high of 69.63 USc over the weekend after the surprisingly weak US data reduced the potential for US rate hikes, thus making the US dollar less attractive.
Meanwhile, the deflationary winds continue to blow from the rest of the world, with the Melbourne Institute's Monthly Gauge of inflation falling 0.2% in May and dragging annual inflation down to 1.0% from 1.5% in the 12 months to April.
Parliament resumes later today for a third week in a four week post-Budget sitting block.
The Reserve Bank is expected to leave the OCR on hold by most New Zealand economists, although 8 of the 15 economists surveyed by Bloomberg still see a cut to 2.0%. The seven who see no cut include ANZ, BNZ and Westpac (which changed its call last week). Of the big four banks, only ASB sees a cut, and also sees it as a close call.
Have a great shortened week and check out my weekend column below on Auckland productivity growth (or the lack of it.)