28 Nov 2013

Reserve says risker loans have fallen sharply

12:32 pm on 28 November 2013

The Reserve Bank says there has been a substantial fall in mortgage lending to those with small deposits, but it is still to early to know whether it has slowed an overvalued housing market.

The central bank introduced new rules to restrict riskier loans to just 10% of new lending at the beginning of October, to protect the financial system in case of a shock to the economy.

Excluding exemptions, the Reserve Bank says lending to those with a deposit of less than 20% fell to 12% of total new lending last month, compared with 26% in September.

Deputy governor Grant Spencer says retail banks are well-placed to meet the new target, which will help reduce the risk of a sharp fall in house prices, which could damage banks' financial position and the economy.

The new figures are from a survey of banks implemented earlier in the year to collect better quality data on low deposit loans.