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In April 2020, in reaction to a pandemic, RBNZ briefly abolished residential mortgage loan to value limits. In its latest Financial Stability Report, however, published last November 2020, RBNZ announced a re-taxation of the loans for higher risk for investors until 1 March 2021.
"While economic activity dropped sharply earlier this year, housing and housing credit growth steadily bound up," the RBNZ said. "An growing proportion of this loan is going to low-income borrowers, making the borrowers' balance sheets more reliable. If this pattern continues, the stock of low-deposit home loans on bank books will eventually reach a level that puts the financial stability at risk."
"The reinstallation of LVR restrictions will boost the households and the banks' resilience to a future housing market downturn," added RBNZ.
Since October 2013, there have been LVR restrictions limiting the amount banks can lend to low-dollar borrowers to reduce domestic prices and discourage speculative procurement. The limits have adjusted over time and were lifted in April last year due to the COVID-19.
NZ Economy Pandemic Hits
According to the International Monetary Fund, the pandemic expectation of the New Zealand economy was 6.1% in 2020 compared with its good economic success over the last decade, with 2.2% in 2019, 3.2% in 2018, 3.8% in 2017, 4.2% in 2016 and 4.1% in 2015 and 3.2% in 2014. New Zealand experienced years of uninterrupted economic growth following the Asian financial crisis, with an average annual growth of 3.8 percent between 1999 and 2007.
The economy just shrank briefly and moderately during the current global recession - 0.4 percent in 2008. In 2009, the economy grew slightly by 0.3%. New Zealand emerged rapidly from the recession after just five quarters of negative GDP.
The economy is expected to recover this year. IMF growth is forecast to be 4.4%.
In May 2020, in addition to the initial package announced in March 2020 for the first time, the Government launched a record pandemic stimulus of NZ$ 50 billion (US$ 35.6 billion) worth 12.1 billion (US$ 8.6 billion). The package includes the building of 8,000 new homes, spending NZ$4,000,000 on helping to deal with difficulties, creating 11,000 jobs and extending its current wage subsidies scheme.
The nation has an anticipated deficit of 28 billion NZD, or around 9.6 percent of GDP in 2020, compared with the surplus of 7.4 billion NZD of last year (USD 5.3 billion). In 2021, the deficit is expected to reach NZ$29.6 billion (US$21.1 billion).
The gross debt of the general government of New Zealand rose to 48% of GDP in 2020, up sharply from 31.5% in the preceding year and by the IMF's highest since 1994.
New Zealand figures show that unemployment was 5.3% in the third quarter of 2020, up from 4.2% in the previous year and the highest in five years. About 151,000 unemployed were affected by the COVID-19 crisis in the third quarter of 2020.
In Q3 2020, inflation was 1.4%, slightly lower than the figure of 1.5% last year. Inflation currently falls within the scope of the RBNZ range of 1% to 3% by 2020.
Prime Minister Jacinda Ardern won a second term after a landslide victory at the elections in October 2020. Ardern has campaigned on a range of social issues, including affordable insecurity and homelessness, improved health and child poverty. On the international stage, she has been praiseworthy for managing two major crises – the 2019 Christchurch Mosque shooting and the 2020 COVID-19 outbreak.