NZBA tells RBNZ to lift its proposed speed limit on banks' high LVR lending to residential property investors; ASB turns tap off

If the Reserve Bank must introduce restrictions on banks' high loan-to-value ratio (LVR) lending to Auckland residential property investors the speed limit should be at least 5% rather than the "unworkable" 2% proposed, the New Zealand Bankers' Association (NZBA) says.

NZBA has also reiterated its opposition to the prudential regulator's view that loans to residential property investors are riskier than loans to owner-occupiers. It has done this in its submission to the Reserve Bank's consultation on planned adjustments to restrictions on banks' high LVR residential mortgage lending. NZBA's view on this was outlined previously in its response to the Reserve Bank's plans to introduce a new asset class for bank loans to residential property investors.

In May the Reserve Bank also announced plans to introduce changes to the restrictions on banks' high LVR residential mortgage lending it has had in place since October 2013. Proposed to take effect from October 1, the changes include; a requirement residential property investors in the Auckland Council area using bank loans have a deposit of at least 30%; increasing the existing speed limit for high LVR borrowing outside of Auckland from 10% to 15% of banks' new lending flows; and retaining the existing 10% speed limit for loans to owner-occupiers in Auckland at LVRs of greater than 80%.

The Reserve Bank is proposing a 2% speed limit on the LVR restriction for residential property lending. This means banks could effectively do no, or very, very little lending at LVRs of 70% or above to property investors as the 2% limit will be a condition of their banking registration. Thus breaching it could, potentially, cost them their banking licence and they will want to keep a buffer below the 2% level to be safe.

'Particularly unworkable'

NZBA has told the Reserve Bank a 2% speed limit as a condition of bank registration is "particularly unworkable."

"We propose at least a 5% limit, or that the Reserve Bank consider a materiality threshold in bank conditions of registration to ensure that the policy is workable and that minor and incidental breaches do not constitute a breach of the conditions of registration," NZBA says.

"Alternatively the Reserve Bank could choose not to impose the additional restrictions as a condition of registration, but to police the policy through other anti-avoidance mechanisms."

NZBA goes on to say the non-Auckland 15% speed limit proposed should be higher still, claiming there's a "risk of negatively impacting economic growth" even at the revised 15% limit.

The bank lobby group also says the October 1 proposed start for implementing the new LVR rules is challenging, urging the Reserve Bank to finalise its policies as soon as possible and then make no material changes to them in order for banks to have the "confidence and ability" to meet specified timeframes.

ASB turns tap off

Meanwhile banks are already responding to the Reserve Bank's plans for high LVR lending to Auckland property investors. An ASB spokeswoman confirmed her bank was doing so.

"We have been asked by the Reserve Bank to act in the spirit of the changes in advance. What this means in practice is that, from 16 July, all new applications (including pre-approvals) which involve lending on Auckland residential investment properties will now be assessed on a case by case basis to ensure we comply with the spirit of the Reserve Bank changes. For such loans, we intend to honour all existing pre-approvals and loans documented prior to 16 July until they expire," the ASB spokeswoman said.

A Westpac spokeswoman said her bank continues to issue pre-approvals for Auckland investors with deposits of less than 30%, which are valid until 30 September.

"After 1 October, we will need to meet the Reserve Bank's new regulations."

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