Loan-to-value ratio restrictions


(US and European readers, take note that here in NZ we think we have escaped the housing crash and are somehow better than you, so read below with sense of déjàvu if you must)

So what is my take on the new lending restriction now in-place in New Zealand since October 1st 2013?

The likely outcome: 
  1. House prices will go down (if the demand is not soaked up by overseas investors)
  2. Government accounts about to take a U-turn down – along with the economy
“But wait,” you ask, “aren’t house prices hitting records highs right now, the government accounts are looking better and the transport sector is up?” Well, yes they are, but at least in my mind all these things are up because borrowing’s up, and with borrowing likely to head downward with this reserve bank move, things will suddenly turn negative with them. 

As a country we are in trade deficit (and more importantly current account deficit) year after year. This fact means we must, as a country borrow money to pay interest on our debt, plus the deficit of our current account year after year.... and a little more for those special extras in life!

So if borrowing drops, less money is around to pay the interest on our ever increasing debt.  So where does the money come from to pay for that? Asset sales and spending cut backs, which in turn mean less tax-take for the Government.

How soon will this happen? I think in a few months the lagging numbers will start to show.

My house, my castle


Every home should be a place of rest, a sanctuary, a castle. In these busy and stressful times, we all want a place to retreat to at the end of a long day, or when life becomes too much.

But someone forgot to mention that some castles come with dungeons and chains. And the chains that hold you might just be the debt it takes to keep your castle.

Is your castle a place of freedom, or does it only harbour slaves in its deep recesses? If debt is the price you’re paying, then could your house actually be your master?
This takes some reflection. Have we become slaves by choice? Absolutely, but most don’t see it that way. Our society has totally normalized housing debt as good debt. Every budgeting show I’ve seen recently helps people get out of debt – but makes an exception for their mortgages! They actually help them get out of debt so they can enslave themselves to even greater debt: the socially acceptable mortgage. The “devil we know” – the good debt.

And when New Zealand’s Reserve Bank actually makes a good move to limit high leverage borrowing, there is the cry, “No, don’t limit our borrowing. Think of the struggling young couple wanting to own their first home!”

Why do we work for twenty, thirty or even more years just to pay off a house that gets built in a few months? Why are houses worth so much? We’re told it’s about supply and demand.  Sure, the supply of debt is enough to enslave, and the demand of people willing to bid up housing to the maximum available debt enslavement is endless.

But it takes two to tango. We bid up housing against our neighbour with debt money provided to enslave each other:

How can people’s eyes be opened to this insanity, to realise the level of misery that the lust for housing can create in this country, your family; your castle? When debt levels become overwhelming, from it can stem conflict, violence and broken homes.

Just how will the people manage with one less option of having a massive debt to equity burden?
Better in the long term I would guess!  Why isn’t the main stream media talking at least about the possible benefits of reduced debt and lower housing cost as a result of the Reserve Bank move?


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