ASB is joining other banks in increasing the size of the deposit it requires from residential property investors seeking a loan.
Late on Friday ASB said it was increasing the deposit required from investors to 40% from 30% effective immediately.
“We’re concerned the continued high levels of investor demand are unsustainable. So effective immediately we are increasing the deposit required from investors to 40% from the current 30%,” ASB’s CEO Vittoria Shortt said in a statement.
Loan pre-approvals already in place are unaffected, ASB said, with the change applying to home loan applications and top-ups that haven't yet been conditionally or fully approved, and rollover of existing conditionally or full approvals at expiry.
“We are very focused on being a prudent and responsible lender. We all have to play our part and this decision to immediately increase the deposit required from investors is about ensuring a balanced and sustainable housing market which is in the best interests of all New Zealanders,” Shortt said.
In last year's September quarter ASB grew its home loan book by a net $1.895 billion, or 3.14%, to $62.236 billion. That quarterly increase was the biggest among New Zealand banks. December quarter figures aren't yet available.
On Wednesday BNZ said due to unprecedented housing demand, it was prioritising existing customers and applying a 40% equity requirement for new loan applications from investors who come to the bank via brokers. BNZ's 40% deposit, or equity, requirement is also up from 30%. And ANZ also increased deposit requirements for investors to 40% in December.
Having removed restrictions on banks' high LVR residential mortgage lending last April, the Reserve Bank said in November these would be put back in place in March. At that time Deputy Governor and General Manager of Financial Stability, Geoff Bascand, told interest.co.nz the Reserve Bank intended to “reinstate the restrictions we had in place in April before we removed them”.
Specifically, Bascand said this meant no more than 5% of a bank’s investor lending could go to borrowers with deposits of less than 30% (IE most investors need a 30% deposit). And no more than 20% of owner-occupier lending could go to borrowers with deposits of less than 20% (IE most own-occupiers need a 20% deposit).
Major banks requiring a 40% deposit from investors thus goes further than what the Reserve Bank has indicated it plans to require.
In November ASB recommitted to requiring investors to have a 30% deposit rather than 20%.
35 Comments
What a load of Bollocks its not going to stop house price inflation created by the NZRB. Banks are in the business of lending money so as long as you can afford the repayments it shouldn't be an issue but o no lets blame the investor for causing this and make it as hard as possible for them to borrow money.
Mr Pink...Banks need investors to have high equity so that if interest rates are back to 6 or 7% again in a few years and many investors cannot service the debt the banks know there is a decent margin between their security and the debt. It is (wisely) protecting (greedy) investors against themselves.
Even most capitalists understand there should be some things that should not be bought and sold purely for profit eg housing, children, human organs etc. Trading in these types of things causes so much human misery.
Riiight.. I think you're missing the point here.. This isn't about ASB trying to make a social statement about unaffordable houses. They just think that too many investors (including you, perhaps?) wouldn't be able to service their loans if there's a slightest negative change in their circumstances, and they're not willing to take on that risk. This is a purely self-interested move that is independent of RBNZ - which is why it is truthful peek into what banks actually think about the economy and the housing market.
What's scary is the house price inflation is happening in many countries, if not all.
New York house price is rising steadily at 4~ 5% a month Tokyo and Seoul is seeing higher rate.
NZ rise is relatively small compared to other nations. (Even though we are coping Covid better)
I figure we will be likely to see another huge leap this year, possibly much bigger rise than the last year.
See today's news, they do the opposites as obviously being ignored by the govt about the QE risk, as a matter of fact, RBNZ fought for DTI long ago (rejected by both 'prudent' govt), then have to settle to 2013 LVR toolkit.
IF you're the 'RBNZ team'? you'll do the same: drastically reduced the OCR (negative still possible), QE that beats the rest of the world (still more room for numbers), in 2018 Lab so chicken out compare to the rest of the world putting the 'unemployment' mandate control to RBNZ.. hence those fast big QE/FLP numbers to save the govt from the scrutiny, recently Grant toying the idea too for housing mandate..but rejected. As they already have the CPI and OCR mechanism to control it.. but yea, sadly? the govt exclude the out of control RE inflation from CPI - so let's just wait how this tea cup storm being artificially add liquid to it, spin it faster.. yet the cup is still the same size.
Well said. That will remove the Ponzi element out of the housing market. Maybe remove interest only mortgages for investment purposes as well, if your investment stacks up you shouldn't need to take out non-performing loans. Hell, if it's a business then why not take out business loans like every other company does? Then I'm happy to see residential property investment see tax incentives like other businesses enjoy.
I agree, also how about also when you extract equity, mark to market CGT tax event? With all of these things it seems to make sense, is consistent, and seems too easy. Although I'd suggest a bit more tax for a non productive investment (aka speculation). Debt for productivity is one thing - debt for asset price speculation another. Anyone want to pick holes in that?
Very clever idea - and yes, particularly sensible to collect more revenue from leveraging investors given the massive subsidies the general taxpayer is stumping up for accommodation supplements that go straight to their back pockets. What a good way to offset some of that expense with a mark to market CGT tax event for leveraging-up, and at the same time cool investor appetite.
Great idea.
Yes, yes, yes. This is a great idea and it would probably be the best option. This would at least make FHB's and speculators play on a more equitable level.
Actually, I would enforce at least a 70% cash deposit on speculators, and only 10% equity deposit requirement on genuine FHB's.
Moreover, I would also add a tax on interests paid by speculators (so that they would pay, say, 4-5% total interest p.a. on the mortgage), and use this money to provide tax incentives to FHB's.
Moreover, expending the bright-line property rule period to 20 years, on anything that is not the first home, would probably help as well.
Good in theory, but difficult to enforce without people working loopholes to get around it. If a bank required a $400k cash deposit, people will borrow $400k against their current properties and use that as 'cash' for their next purchase, (going through a different bank/lender if required).
Banks need to possess quality books. Also the stress on demand for mortgages is starting to effect the level of customer service, as I understand. Forty percent equity won't be a stretch for those investors who have spent time in the current market. So I don't think the prices will be slowing down as a result. Good time to be a valuer.
Given average house price gains were 20% last year alone, you could look at this as only a 20% 'deposit' requirement;
https://www.stuff.co.nz/life-style/homed/real-estate/123957958/house-pr…
That said, I'd prefer they dropped the word 'deposit' and instead used the word 'leverage'.
In other words, last year rental investor/property holders were required to leverage other properties at the rate of 30% on subsequent purchases, which has now been changed to 40%; and 20% of that new 40% requirement was 'earned' tax free last year alone.
Never an investor in that sense of the word - as I mentioned, we've only been landlords twice - one a low-end property, the other a high end one. Bought our first low-end rental because we had a son doing his tertiary studies at a campus without any student accommodation available. Then rented our (high-end) house out when he finished, and moved into the rental so that we could renovate it for re-sale. That's the sum total of my landlording experience. And yeah, we used 100% leverage (i.e., no cash in deposit) on the first rental.
I think we should sell out our Domains and build cities with Billions of free munny. Then we can Party Hearty.
https://www.dailymail.co.uk/news/article-9225393/Inside-Chinas-bold-pla…
Have a Gander...??. ....Then think.......and think...again.
What the Hell??.
Wot tis? why sudden prudent measures? when even the RBNZ still put it in the box - so tool/s does make a difference eh? let alone the CGT, what happen when the tools such as LVR, DTI, OCR, Brightline being tweaked? - I bet that the 'supply & demand' basic theory can be distorted.. if there's a will... for sure. Even the hawkish, started to change the tune, realising that forever steep climb up RE will only yield for unpleasant ends.
I know lots of people want too see a decrease in prices. Personally I see it dropping or stagnating for a few years now.
But seriously having a big crash is not in most people's best interest. Given our debt exposure, that would have a serious knock on effect to a lot of everyday spending. Though personally my portfolio now carries minimal debt so I'm capable of taking the hit and I'm Mindful of the risk factors. Yeild is king.
Making incremental changes that push down over say 10 year is the way to go. Keep it stagnent and give incomes a chance to kick upwards.
Though yeah we definitely need to hold this govt to account on this one re these recommendations. The main thing the campaigned on originally... They just kicked it off further.
I mean I voted Labour. But I'm a swing voter, and it's clear that they are not exactly the follow through types. 420, housing. Lots of nice selfie picks, but thats just fluff.
The cv19 response was good, but wasn't exactly rocket science. We are surrounded by a big moat and have a small, community focused population.
So definitely not giving them another chance next time. Need some more substance please.
It is quite wrong to keep on stating that everyone is entitled to a home. Sorry but having a home is not a right when someone else is paying for it. The Government insists that more Social Housing is a top priority. What it is really saying is that accommodation has to be provided by those who work and have a good income, to those who won’t work. Why should hard working kiwis who pay tax on almost everything, support drunks and druggies? Why should solo Mums be a life choice and be paid for having more and more children from different fathers? I hate the guys who criticise and minimise the other guys whose enterprise has made them rise above the guys who criticise and minimise. We have become a nation of takers and bludgers who expect handouts as a right, not a privilege.
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