The Reserve Bank was too quick in ruling out regional exemptions for its recently introduced loan-to-value ratios, Labour finance spokesman David Parker said yesterday.
''We don't accept it was too hard. Sure, it is has a little complexity but every bank knows where its mortgages are. It's not that hard. The Reserve Bank was too quick to say its LVRs would not apply regionally,'' he said in an interview.
Reserve Bank governor Graeme Wheeler yesterday provided a stern warning about the future of interest rates if the LVRs, which restrict banks on how they lend on mortgages, failed to reduce rapidly rising house prices.
In an opinion piece, Mr Wheeler said some people had suggested LVRs should be applied regionally, especially around Auckland, or the central bank should exempt buyers of lower-priced houses.
''We considered both options. Regional restrictions would be hard to administer and would shift housing pressures outside wherever the boundary is drawn.''
Exempting low-priced housing would be a recipe for rapid increases in the cost of such housing, he said.
Broad exemptions to other groups, such as first-home buyers, would substantially undermine the effectiveness of the restrictions in reducing house price inflation.
Mr Parker did not accept Mr Wheeler's explanation.
While he supported the Reserve Bank's use of macroprudential tools, rather than interest rates, to keep inflation low, Mr Parker said the LVRs were likely to hurt home buyers in places like Oamaru, which had no housing price pressure.
The Government had forced the Reserve Bank into a corner by not dealing with the demand and supply issues facing Auckland and Christchurch, he said.
Some banks were likely to have different mortgage lending criteria for different parts of the country as they competed for business.
''They can manage their risk. Why can't the Reserve Bank?''Mr Wheeler said while the Reserve Bank's mandate was to promote financial stability, there were clear implications for housing affordability.
Over the next two years, interest rates were likely to rise in order to restrain an expected increase in broader inflation pressures.
The expectation was for the official cash rate to rise by 2% from 2014 to the beginning of 2016, taking it from the current 2.5% to around 4.5%.
''This could result in interest rates on first mortgages of 7% to 8%. If the loan-to-value speed limit is unable to slow house price inflation, larger increases in the official cash rate would be required.''
The central bank was keen to see house price inflation moderate significantly and, in doing so, reduce the risks to the financial sector and the broader economy, Mr Wheeler said.
Limits on low-deposit lending were designed to help achieve moderation.
LVR restrictions were expected to give the Reserve Bank more flexibility as to when and how quickly it had to raise interest rates.
But the more fundamental solution to reduce pressure in the housing market lay in addressing the issues around housing supply, he said.
Auckland real estate firm Barfoot &Thompson managing director Peter Thompson said the impending introduction of the LVRS had no measurable impact on Auckland house prices in September.
Prices continued to rise steadily and modestly in September, in much the same manner as they had since March, he said.
Both the median and average price were they highest they had been but the rate of change in September was in keeping with what had been occurring for the past seven months.
''Month by month variations in sales numbers are common and if the Reserve Bank's new regime was to have had an impact, I would have expected more, rather than less, sales in September, as buyers sought to get in ahead of the new deposit requirements,'' Mr Thompson said.
Westpac senior economist Michael Gordon said the Barfoot & Thompson house sales figures provided more evidence of the Auckland market starting to find some balance.
''We suspect house prices have now risen - and expectations of further capital gains to come have narrowed - enough to prompt more homeowners to put their properties on the market.''
Prices were still rising at a rapid clip. The average price was up 12.3% on a year ago, accelerating from a 9.3% pace in August.
However, Mr Gordon warned figures from realestate.co.nz indicated while the stock of homes for sale was increasing in Auckland, it was still pushing lower in the rest of the country.
If the trend continued, nationwide house price growth could start to converge, slowing in Auckland and accelerating in other parts of the country.
''We are anticipating some temporary softening in the national housing market as a result of the LVR restrictions and higher fixed-term mortgage rates.
"These September figures don't reflect that, nor did we expect them to. We think it will become more apparent from around November.''
