Banks Discuss Ways To Circumvent Possible Loan to Value Ratio Limits (28/6/2013)

It seems the Reserve Bank is willing to accept unsecured top-up loans as a way of circumventing proposed new restrictions on loan to value ratios for home buyers. Michael Gordon, Westpac economist, said that, as unsecured loans incur higher interest rates than unsecured mortgage interest rates, they would still serve the purpose of restraining the demand for credit. He said that unsecured loans were common in Sweden, which has loan to value ratio restrictions.

Reserve Bank Deputy Governor Grant Spencer spoke this week on the new macro-prudential tools being considered.  Of the four tools on offer, Mr Spencer said that the loan to value restriction was the only thing that might cool property price increases. The Reserve Bank is still consulting on the proposed limits, and it is expected that the new rules would be implemented within the next couple of months.  They will apply only to new lending.


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