Income restrictions not the way forward: NZ Institute

Media reports today said the Reserve Bank had not ruled out capping mortgages based on incomes, a move its British counterpart is considering to cool that country’s property market.

Bank of England governor Mark Carney has suggested an "affordability test" for borrowers, stopping them taking mortgages more than 4.5 times their salaries.

A Demographia study found New Zealand's median house price was 5.5 times the median income. Auckland's were eight times the median income.

That means if such a restriction were implemented in New Zealand, Auckland buyers could be forced to decrease their borrowing  - if lending was capped at 4.5 times income, a household in Auckland with the median income of $70,600 would only be able to borrow $318,000.

The Reserve Bank has reportedly said mortgage caps could be looked at in future.

The New Zealand Initiative, a public policy think tank based in Wellington, said the idea was a concern.

But it said it doubted the Reserve Bank would do it.

Executive director Oliver Hartwich said: “To counter high and rising house prices, particularly in Auckland, tools to curb mortgage lending are the wrong way to go. We need to tackle the underlying issue of housing supply if we are serious about housing affordability. In any case, it should be left to commercial lenders to decide whom to lend to and how much.”