Article: Law & Finance

CH CH CHANGES.. with Carie Townley

In June we saw two things happen; the Reserve Bank left the official cash rate on hold and we saw some major banks announce significant changes in foreign lending.

In my Market Update, I explore what happened after the Reserve Bank’s announcement and what economists are predicting for the future. I’ve also looked at what new foreign lending rules have come into effect.

Market Update

Dollar jumps after rates hold

After the Reserve Bank left the cash rate unchanged at its June meeting, the New Zealand dollar jumped 1 per cent.

The dollar went from US70.15c just before the announcement to US71.15c just after, later easing back to US70.90.

Having cut the official cash rate five times in less than a year to an historic low of 2.25 per cent, the Reserve Bank continues to leave the door open to further easing if inflation fails to pick up.

“House price inflation in Auckland and other regions is adding to financial stability concerns,” governor Graeme Wheeler said in a statement.

“Auckland house prices in particular are at very high levels, and additional housing supply is needed,” he said.

Many economists are still predicting that the Reserve Bank will make further cuts this year because of pressure to get back inside its 1 per cent to 3 per cent inflation band. Inflation is currently running around 0.4 per cent.

ASB Bank said financial stability concerns appear to have influenced the decision not to cut rates. “The Reserve Bank may be stalling to allow time to introduce further macro-prudential tools,” ASB economists told the New Zealand Herald.

“As a result, we continue to expect the cash rate to eventually fall to 1.75 per cent, although the Reserve Bank appears very reluctant to cut rates,” ASB said.

Economists at ANZ, Westpac, First NZ Capital and Deutsche Bank all thought the official cash rate would hold at 2.25 per cent in June. Interestingly, all are picking at least one further cut this year.

In its June statement, the Reserve Bank said long-term inflation expectations are well-anchored at 2 per cent and short-term inflation expectations appear to have stabilised.

“We expect inflation to strengthen reflecting the accommodative stance of monetary policy, increases in fuel and other commodity prices, an expected depreciation in the New Zealand dollar and some increase in capacity pressures,” Mr Wheeler said.

The Reserve Bank is due to meet again on 11 August.

What’s trending

Changes in foreign lending

The beginning of June saw some of the major banks introduce new foreign lending rules. Westpac and ANZ were the first to move, with both institutions announcing it will stop issuing home loans to foreign buyers.

Westpac has said it will no longer lend to non-resident borrowers with overseas income. The bank also reduced the maximum allowable loan to value ratio (LVR) from 85 to 70 per cent for New Zealand citizens and permanent residents with overseas income.

ANZ is restricting home loans to foreign buyers that rely on overseas income. New Zealand passport holders living overseas purchasing a property funded by overseas income were exempt from ANZ’s restrictions.

Bank of New Zealand (BNZ) is the third major bank to make changes, announcing it will no longer recognise foreign income of people who are not New Zealand or Australian citizens, or do not hold a current permanent residency visa, regardless of whether or not they reside in New Zealand.

New Zealand and Australian citizens and permanent residency holders, who are not currently residing in New Zealand and are using foreign income to service a loan, will now have a maximum allowable LVR of 60% through BNZ.

We expect other lenders to follow in the coming weeks.

When she was starting out, Carie asked the top Mortgage Broker in Australasia how to become an awesome broker and he simply said to her: “write mortgages” - so Carie set off to do this and so much more!

My clients are extremely important to me regardless of their status or position in life, in fact I have worked hard alongside clients who have been thrown by life’s circumstances, to come up with plans to get them back into the housing market.”

For a personal mortgage reduction analysis to identify the strategies that are in your best interest, contact Carie today on 0275 228 940,
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