Fitch warns of dangers of housing market boom
Updated at 7:51 am on 11 April 2013
International ratings agency, Fitch, is warning of the dangers a housing market boom may pose for New Zealand's banks.
While Fitch director Andrea Jaehne doesn't fear a housing market crash, she is concerned a bubble is developing and that banks could be vulnerable because a growing number of their mortgage customers have low levels of equity in their houses.
About a third of new mortgages at the end of 2012 had loan to value (LVR) ratios above 80%.
Ms Jaehne says what happens next will depend on what the Reserve Bank announces in terms of limitation and regulation and the banks are likely to have internal limits on how much they will lend in that segment.
"We do know that in other countries where we have seen corrections, and where we have seen stresses on mortgage books, that usually it's those mortgages in the higher LVR range are the ones that could cause the stress."
Ms Jaehne says loan to value restrictions will limit loan growth, but it also means that potentially there will not be any buyers in the market who cannot afford such a loan.
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