ANZ has changed the terms of its fixed interest rate home loan offers.
Effective last Friday the bank has increased its low-equity fixed-interest rate threshold from an 80% loan-to-value ratio (LVR) to 90%.
"This means ANZ's home loan fixed interest rates apply to new home loans with at least 10% equity or deposit, existing ANZ Home Loans (unless otherwise specified) or where we confirm that the lending qualifies as an exemption to the Reserve Bank LVR restrictions (for example refinancing from another bank)," ANZ says.
"Home Loans that don't meet these criteria will have an interest rate that is 0.50% p.a. higher than the rates disclosed on our website."
Loans with a deposit of 20% or more will be charged just the carded rate (or a rate the borrower negotiates). Loans with a 10% to 20% deposit will be charged from the same rate card, plus the low equity premium. Loans with less than a 10% deposit will be charged the carded rate, plus 0.50%, plus the low equity premium.
That low equity premium is additional to the higher interest rate and applies to all loans above 80% LVR. It applies on a variable scale. A registered valuer's report will also be required for such lending.
ANZ says it charges low equity fees "to recover the extra costs it incurs when lending above 80% of a property's value". See full details of the major banks' low equity margins and fees here.
| ANZ Low Equity Premium (LEP) | |
| Loan to value ratio | % of the loan amount |
| 80.01 - 85.00% | 0.25% |
| 85.01 - 90.00% | 0.75% |
| over 90% | 2.00% |
The roll back from requiring a 20% deposit to a 10% one acknowledges a market reality - they are not writing enough business and they need first home buyers back in the market.
They can make this adjustment because in hindsight, they over-responded to the Reserve Bank's high LVR "speed limit" . That speed limit restriction has not changed but the headroom most banks have under it permits a more aggressive stance.
On the battlefield, the pressure is on and banks have recently started to relax their rules on a de facto basis, according to reports from mortgage brokers.
Most other banks have quietly removed their specified low equity rate offers, but many are still applying a LVR 80% limit, and either a low equity premium, or a low equity fee. Both BNZ and Westpac recently disestablished what they referred to as two tier home loan interest rate structure, removing all carded, or advertised, home loan rates for borrowers without a deposit of at least 20%.
With this move by ANZ it is very likely their main rivals will follow suit fairly quickly - if they haven't already done so in practice.
Coming just days before the next Reserve Bank Official Cash Rate review on Thursday, ANZ is sending a strong market signal that not only do they have their system controls in place to not exceed the regulatory limit, but that they are now targeting borrowers who have only a 10% deposit.
The Reserve Bank introduced restrictions on banks' high LVR residential mortgages from October 1 last year. This means banks must restrict lending at LVRs above 80% (where borrowers don't have a deposit of at least 20%) to no more than 10% of total new mortgage lending. This 10% limit excludes high LVR loans made under Housing New Zealand’s Welcome Home Loans scheme, the refinancing of existing high-LVR loans, bridging finance or the transfer of existing high-LVR loans between properties, and new residential construction loans.
Banks are being measured by the Reserve Bank on the LVR speed limit, for the first time, on a rolling six month basis for the period to March 31. The results of this will be out later this month.
So far the Reserve Bank has released monthly results for the five months to February. And these showed that during that five months the amount of high LVR lending was running at around 7.25% before exemptions, and under 6.2% after exemptions. This suggests all the major banks are comfortably under the 10% limit.
12 Comments
Oh, good.
Perhaps it is time we all start calling these mortgages what they are referred to in the United States - so we can have a little perspective and context to the issue.
Subprime mortgages.
That should cause banks and their investors, and the wider press, to pause for a moment to ponder (and hopefully remember it was indeed subprime mortgages and how they put house prices on a treadmill until they created disaster after disaster).
What were the mortgage backed securities the banks were off loading to the RB then in 2008/09 in return for funding. If their loans were so good why couldn't they get market funding? Without the RB liquidity and the government deposit guarantee they were toast. Will be the same in the next big crisis except they'll need even more help.
Yep because there was a GFC going on and most banks globally had funding lines dry up for a few weeks as all an sundry ran for cover, banks, institutions, hedge funds and the public. Subprime in the US was another thing...low teaser rates to suck you in with a upward trigger 2-3 yrs later , banks bundling up crap mortgages and on selling them and then shorting them in the market (what do you think the banks thought of their mortgages?). No it won't be the same next time, not so early anyway as back then NZ banks were very short funded because it was cheap, but now MUCH longer funded but paying up for those terms.
Point is when the crap hits the fan every 8-10 years the banks need the RB and government to support them, explicitly or implicitly. Their business model and lending relies on it. What other industry gets that level of support? If they need it to make their rather large profits shouldn't their business model be altered to reduce risk(more capital/reserves?), even if that means lower profits (to mostly offshore shareholders) or at least be paying in to an insurance or rainy day fund to cover their own backsides instead of the taxpayer. Their armageddon threat needs to be removed.
Yes I don't disagree wtf, banks will be supported for liquidity in a crisis, not insolvency, but liquidity, yes almost certainly. So an insurance fund sounds sensible to me, and although the RBNZ has been raising bank capital adequacy requirements, yes maybe more is needed. One thing to remember though, those costs will be passed on as much as a competitive environment will permit so it will mean marginally higher interest rate costs to borrowers and the economy.
Yep, and the Reserve Bank has already done some pre-work on that event by establishing OBR so next time it's on the suckers that lent their bank money without taking any collateral, I mean, deposited their money in the safety of of their bank for some measley interest.
The banks are still doing it!!
I work in Kiwibank and when I read about the first time Kiwibank was doing a BOND ISSUE to raise capital I got curious to know what all this was about and when i researched trail ie. the buyers of the bonds and the terms etc etc, i found out that essentially the bank offers up mortgage-backed securities to Swiss (overseas) investors who buy them and are given first dibs on any of those mortgage contracts purchased. Look in to these bond issuances by the banks, the facts explain it (worringly) better than I can.
Yes Realme but the RBNZ limits the NZ banks as to how much of their mortgage book they can directly secure bond issuance against - 10% from memory as compared with no limitation previously in the US as I understood it. Secured offerings are naturally at lower cost to the banks, so cheaper cost to NZ borrowers, but obviously has to have restrictions around amounts to protect other bank investors.
thanks Grant for the reply and gives me some peace of mind that RBNZ and NZ banks in general are not "cowboys" like their US or EU counterparts. I still get the feeling that regardless, if and when GFC2 happens, we may not come out of it as unscathed as last time.
Agreed Realme, and I'm sure there will be a hit at some point in the future because I'm one of those that think there will be a decent housing corerction sometime, just no idea on timing - hopefully its only the bank shareholders that take a hit, barring no doubt some liquidity provision from the central bank which is their primary job anyway in an emergency.
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