WELLINGTON, New Zealand – Six months after introducing unusual rules to try to tame a booming housing market, New Zealand’s Reserve Bank said Wednesday those measures have been a success.
Last October, the bank introduced rules that require most borrowers to stump up a 20 per cent deposit in order to buy a house.
In a report on the country’s financial stability, the Reserve Bank said the measures have contributed to an 11 per cent drop in home sales since the measures were introduced.
It also estimated annual price increases have been limited to 9 per cent instead of an estimated 11.5 per cent without the restrictions.
The Reserve Bank said homes are still overvalued when compared with historic averages and remain among the most expensive in the developed world when compared with incomes and rents.
Reserve Bank Governor Graeme Wheeler said household debt remains high and the country’s financial stability would be threatened by a sharp drop in home prices.
The bank this year has raised benchmark interest rates by 0.5 per cent to 3 per cent, making New Zealand one of the first countries in the developed world to begin raising rates since the 2008 financial downturn.
The country has been benefiting from strong demand for its milk and agricultural exports, particularly from China. Its economy has been growing at a healthy annual clip of 3.5 per cent, prompting the bank to apply the brakes.
The bank said the earliest it would consider removing the home lending restrictions would be late 2014. The rules require banks to restrict low-equity mortgages to a maximum 10 per cent of their mortgage portfolios.