Banks cautious on Government leaky homes proposal

Representatives from the country's major retail banks will sit down with officials from the Department of Building and Housing this week to find out just what would be asked of the banks if they commit to the Government's financial assistance package for leaky home owners.

The Government announced plans this week that would see it and local authorities each cough up 25% of agreed repair costs with affected homeowners funding the other half backed by a government loan guarantee. The loan guarantee would be underwritten by the Crown provided applicants could meet bank lending criteria, Building and Construction Minister Maurice Williamson said.

Williamson said if, as government officials forecast, 70% of affected homeowners within the 10-year liability limit took up the offer, the Government expected taxpayers' share of the bill for fixing leaky homes to be about NZ$1 billion over the next five years. However, Sarah Mehrtens, chief executive of the New Zealand Bankers' Association, told interest.co.nz the banks' had not yet committed to the government rescue package. She said they couldn't until they knew more about it.

"We've just said that we'll work with them to flesh out detail to see whether the banks can commit," Mehrtens said. "We only know as much about it as has been publicly released."

Representatives from the association's retail bank members - ANZ, ASB, BNZ, HSBC, Kiwibank, the National Bank, Rabobank, TSB and Westpac - will join a working group with Department of Building and Housing officials to discuss the rescue package. The group's first meeting is expected this week.

Mehrtens said it was not yet clear what bank lending criteria might be or what the government loan guarantee might look like.

"It's like anything, the devil's often in the detail," Mehrtens said. "We don't know enough about the detail and how it's going to work."

One potential concern is understood to be whether loans to leaky home victims could put pressure on the banks' liquidity and capital adequacy requirements set by the Reserve Bank. The banks would also require the approval of their boards to take part in any rescue package.

A PricewaterhouseCoopers report commissioned by the Government last year estimated between 22,000 and 89,000 homes were affected. PwC said a consensus forecast suggested 42,000 dwellings were likely to be leaky homes and noted only about 3,500, or 8%, had been repaired. PwC estimated the total cost of fixing 42,000 leaky homes, including repair and transaction costs, at NZ$11.3 billion in 2008 dollar terms.