Other large banks don't appear in a hurry at this stage to match the country's largest home lender ANZ in requiring housing investors to have 40% deposits.
The 40% move with immediate effect from ANZ on Tuesday goes further than the recommendations of the Reserve Bank, which is moving to have 30% deposits for investors in place by March.
Kiwibank, ASB, Westpac and BNZ have all declined to follow suit, at least for the moment.
The move from ANZ comes as the housing market has absolutely taken off with prices having risen by 18.5% in the past 12 months.
The RBNZ is currently consulting to reintroduce loan to value ratio (LVR) restrictions, which it removed in May.
The proposal from the RBNZ is to reinstall the restrictions exactly as they were when removed in May. This means 30% deposits for investors and 20% for owner-occupiers, with banks able to lend up to 20% of their new mortgage lending for loans in excess of 80% of the value of the property (IE for deposits of under 20%). Most major banks have already adopted these rules ahead of the planned March reintroduction.
But now ANZ has gone further. The 40% deposit level for investors actually aligns to what the requirement was back in mid-2016 when, with more than a hint of desperation, the RBNZ slammed 40% deposits on all investors. It worked. Subsequently these rules were relaxed over the past two years as the heat came out of the housing market.
We approached the other big four banks for comment.
ASB executive general manager for retail banking Craig Sims said: "We believe a balanced and sustainable housing market is in the best interests of all New Zealanders, and we are committed to playing our part in helping first home buyers get onto the property ladder. As part of this, we made changes to our lending criteria last month, requiring a greater [30%] deposit from investors. We continue to monitor developments in the housing market and we regularly review our credit settings, and will make changes as appropriate."
A Kiwibank spokesperson said: "At this stage Kiwibank will maintain its current loan-to-value ratio (LVR) settings. These settings align with Reserve Bank LVR restrictions. For property investors Kiwibank requires a 30% deposit and owner occupiers a 20% deposit which we consider appropriate. It’s something we consistently review, and we’ll continue to consider our response to market conditions."
A Westpac spokesperson said: "While we regularly review our LVR settings, we currently have no plans to change our deposit requirements for residential investors. We have taken a consistent and responsible approach to lending throughout the year, and did not change our lending criteria when the RBNZ removed its LVR 'speed limit' restrictions in April.”
A spokesperson for BNZ said that bank was "sticking with 30% for now" in terms of deposits for investors.
It is not the first time ANZ has talked about going further than the RBNZ official rules. In 2016 then ANZ NZ chief executive David Hisco suggested 60% deposits for investors.
In the New Zealand market, ANZ is a very big player. It accounts for just under a third of the total mortgage lending.
ANZ's managing director of personal banking Ben Kelleher said the bank's decision followed two months of record levels of mortgage lending.
In those two months some 32.4% of the new mortgage lending had gone to investors, while 18.3% had gone to first home lenders.
“Escalating property prices are putting home ownership out of reach for many Kiwis," Kelleher said.
"The current settings favour property investors particularly over first home buyers, potentially locking a generation of New Zealanders out of home ownership.
“It’s in everyone’s interests for residential property prices to be sustainable long term, and for home ownership to be accessible to as many people as possible.
“As New Zealand’s largest home lender, decreasing the LVR on residential investor lending is one thing we can do to help bring balance to the residential property market.”
Here is the announcement from the ANZ:
ANZ Bank NZ today announced it would require a 40% deposit from residential property investors as a step to bring balance to the housing market.
Effective immediately, investors will need equity of 40%, up from the current 30%, when borrowing to buy residential property. There are no changes to deposit requirements for other residential buyers, including first home owners.
ANZ Managing Director Personal Ben Kelleher said ANZ would also be recommending to the Reserve Bank of New Zealand (RBNZ) as part of the current consultation that loan-to-valuation ratios (LVR) be set at 60% for residential property investors, rather than the 70% that has been proposed.
“We’ve been closely monitoring the impact on residential property prices of historically low interest rates, reduced LVR requirements and existing issues with supply and demand,” Mr Kelleher said.
“Escalating property prices are putting home ownership out of reach for many Kiwis. The current settings favour property investors particularly over first home buyers, potentially locking a generation of New Zealanders out of home ownership.
“It’s in everyone’s interests for residential property prices to be sustainable long term, and for home ownership to be accessible to as many people as possible.
“As New Zealand’s largest home lender, decreasing the LVR on residential investor lending is one thing we can do to help bring balance to the residential property market.”
ANZ has seen two record months of residential property lending with 32.4% going to residential property investors and 18.3% to first home buyers.
He said ANZ would longer term be guided by the outcomes of the RBNZ’s consultation process early next year.
103 Comments
Their analysts have concluded that there will be a global synchronized slowdown starting in January 2021 once the rent evictions in the USA start. Otherwise if they were expecting ever-increasing prices, it would be foolish of them to make it harder for investors to borrow from them.
Why?
A good question. My guess more about business reasons (self interest):
- In self interest they can add 1% low equity premium for LVR <40% with out negotiating, and
- They are likely seeing a flattening of the market, possibly with chance of some minor correction - which could be for an extended period as nobody can argue current rate of increase is sustainable.
There is no shortage of very, very cheap funds to lend; extra $10bn in deposits in NZ banks (at less than 1% on TD) and I understand FLP not touched yet (at OCR).
Just received ANZ Property Focus.
Haven’t had time to read it fully other than glance at it . . . But certainly sustainability of current rises is a concern and with affordability issues a “disorganised correction” is an increasing risk.
Before the bubble burst rhetoric starts - I have commented for a month that the current rises are not sustainable and I see RBNZ taking action such as their LVR to cool the market for economic stability reasons.
Clearly continuing current monthly rate of growth (they say it’s unprecedented) is unsustainable and increases risk of a considerable correction if left unchecked. It’s not only households exposed, but also banks and they are risk aversion.
Bottom line for us Joe Bloggs is that the market is likely to be peaking so I wouldn’t be buying now on the expectations of good short term capital gains.
The best of this party is over.
Hi Fritz
Agreed that there will be balancing of OCR, FLP, LVRs and further QE.
However, despite what Orr says about having no responsibility for housing, they will be acutely aware of the housing market as it is not in RBNZ interests to see housing instability and with its economic consequences. I don't rate Orr as a fool.
The delay in LVRs until March has much to do with the current uncertainties around Covid risks and the risks to the economy; RBNZ seems prepared to wear increasing house prices in the short term (into the new year) to counter the current uncertainty and risk rather than having the uncertainties/fears generated by having LVRs on and then off.
With the opening of travel bubbles and and the economy returning to normal (locally and hopefully and somewhat globally such as currently in China and in the USA with vaccine rollout) I see less need for stimulus coming from RBNZ.
So my guess is that there is some likelihood that OCR may not go negative (holding back on some of the diminishing ammunition). I think this is supported from understanding is that banks have not taken up the very cheap funding available under FLP - plus they are currently awash with funds having $10bn extra deposits which they need to do something with.
Surprise Surprise- I wondered how long it would be. The banks must be seriously worried about the housing market and how much it is overheating. The only reason for a higher LVR will be they fear investors have paid too much for houses and wont necessarily get enough rent to service the loan in the next 12-24 months (especially when you consider the amount of new builds completing in the next 6-12 months- adding to supply when there is low immigration). If investors cant get sufficent rent there is a high risk of loan default and the banks are wanting to make sure there is sufficent buffer on the loan if they have to sell the property.
I'm surprised NZ banks don't have investor rates at 1 or 2 base points higher than owner occupied. Majority of this additional revenue generated from these higher rates then passed on to where it is needed (risk mitigation). A step further would be removing the interest paid as a deductible on tax returns (more government tax). This would then appeal only to cashed up investors in the market rather than 20%/30%/40% LVR's.
Ryu.. I like the idea however it doesn't make commercial sense for banks to charge more for loans with way lower risk. Unfortunately the casualties will be the FHBs who got in right at the end and are forced to sell. Most investors will be able to hold on for years if need be due to high equity and usually a much better overall financial situation.
I knew a broker in recent times who sold many loans to many first time "investors", many of whom passed themselves off as first home buyers, using their Kiwisaver only to rent the house upon settlement. A lot were otherwise intelligent people in good jobs and essential roles in which they excelled. But many did not comprehend the costs rentals involved.
Anyway, time after time they came across a disturbing lack of understanding from these "investors" as to the most basic fundaments, principally what a yield calculation is, what a cash flow forecast is. Many were universally blind to the massive cost of property maintenence when required. I'm talking new roofs, hot water cylinders that go bust, constant repairs, not to mention healthy homes compliance. They weren't meant to but would ask bluntly "have you considered net yield if you get a long period of vacancy? Or, what if you - shock horror, don't get the rent you're asking?".
These questions and more were against the brokers remit of write as many f loans as possible. Some banks started checking out the loans and started sniffing around. At least the banks were kind of being prudent in their own twisted, enabling way. True story.
Taking your point that you are guessing, and the lack of influence on prices, but if you are correct then a fair portion of the mortgage market are possibly increasing their debt at a time when the prudent advice would be not to? (note that is is NEW mortgage lending)
The banks want to lower interest rate, even into negative. To do so they have to restrict lending. Because with current settings they have smaller revenue and need interest to be slashed. Once they will stop approving mortgages RBNZ will not have other choice as go into negative and QE.
The banks dont want negative rates (RBNZ and the government do - the banks are actually speculating that a negative OCR will not be required). The banks make lower margins when interest rates fall - they cant lower term deposits too far as this results in lower savings and less deposits to lend out- unless of course the government lends them the money needed for loans (which it is doing so under the FLP program) so their margins are constricted as they pass through lower borrowing rates but still need to pay deposit rates.
Banks increase LVR rates when they are concerned that there is risk in default of the loan and they will have to sell properties at a price lower than the market valuation/ or price paid for the proerty - a 40% deposit means they can sell the property for 60% of the current valuation (or price paid for the property) and the loan is paid off - eliminating the risk of a bad debt for the bank - the house owner carries then the loss not the bank. All banks care about is ensuring their loans are paid back in full.
The banks do not need your deposit at all. They can get money from the thin air. They only need deposit as part of regulation when they are required by law.
When interest goes down the house prices will go up.
If you know they it will go into negative and house prices will increase there is no need to make such limit for deposit. Specially when there is competition and other banks will not do it.
If they are concern about house prices will go down and defaults then interest should go up.
This does not change much in the property market. What's the net effect actually going to be given the massive increases in equity over the last 12 months ? Interest rates with be lower come March and with Aussie about to open up net migration will be up.The pressure is on in the main cities due to land constraints , regulatory and building costs. Supply is not going to out strip demand anytime soon. And as the oracle says 'sustained moderation' remains the Government's goal when it comes to house prices, as people 'expect' the value of their most valuable asset to keep rising.
Anyone want to think about and comment on the following idea? The government introduces a law which prohibits mortgage lending on anything but one residential property. I.e. you can borrow for your own home, but if you want to buy investment property, you have to finance it yourself. What effect would that have on the property market? And what effect would it have on how banks make other kinds of loans? Any other thoughts on the impacts? I don't imagine it as retrospective - just on future loans, starting from an announced date maybe a few months away.
You'd be better off keeping restrictions off new builds as they are adding to the stockpile. In fact I'd go as far as to say offer limited period tax incentives to investors who build new housing and apply taxes to investors who rent existing, older dwellings (10+ years.)
In addition local councils should get an incentive (e.g. a match $ for $ for taxes collected for every dwelling under 10 years old) from central government for consenting new dwellings and should be capped on council tax rates on existing housing over 10 years old. This would encourage development and redevelopment.
Not my idea, these are a couple of tools stolen from Germany which has been very successful in providing affordable housing. I've never understood why we don't just steal our housing policy from a more successful country, it would require little skill (copy and paste?) and incur little risk. No need to reinvent the wheel or have some lengthy process that will be stifled and never deliver.
That's a fallacy, I remember an article Brian Fallow wrote that had migrants working in construction as less than 10% of the total, and at a proportion almost exactly the same as the existing population. And that was while the Christchurch rebuild was in full swing.
Migrants add overwhelmingly to the demand side of housing, much more than they contribute to supply.
Instead of cheap properties we will end up with huge McMansions because if you are only allowed a mortgage on 1 property you need that property to be worth as much as possible so that you can leverage against it to buy other properties without having them added as mortgage security.
Developers would quite quickly switch from small low margin work to high margin McMansion work. Home owners will start aggregating adjacent sites into a single title to facilitate the expansion of their McMansions.
You’ll also end up with multiple dwellings on single titles with no sub division, because mortgages are held against titles. This will mean unless you can buy multiple dwellings at once it will be more difficult to get on “the ladder”.
What you're describing is the current situation.
Why would people be seeking massive leverage from their properties if they weren't going to invest in housing (because they can't, unless they're bona -fide property developers, in which case they can use commercial financing rather than equity in their own home)?
Much, much easier to borrow against residential real estate. At the minute even if you build 4 or 6 units on a site you generally subdivide and sell them separately. Only allowing 1 mortgage would make developers skip the subdivision step, “live” in one of the units and have the whole lot count as owner occupied. Maybe buy up the neighbouring plots whenever they come in the market. You would make land owners very desperate to own their neighbours plots (so that can merge the titles) because you would effectively have restricted them to only developing their portfolio around their existing house. This would completely lock first home buyers out (instead of chasing the best yield, you end up with developers chasing the only real possibility for expansion.
In theory, agree. But it's not going to happen, or at least it won't happen enough to make a meaningful difference. For example, a 20% drop now wouldn't be particularly meaningful.
Nz has forever changed, we need to accept this, and we need to make renting better and more affordable. The best way to do that is to get lots of new supply.
And the government can focus on building a lot more housing for the truly needy.
ANZ Managing Director Personal Ben Kelleher said the bank's decision followed two months of record levels of mortgage lending.
In those two months some 32.4% of the new mortgage lending had gone to investors, while 18.3% had gone to first home lenders.
Why do banks and the RBNZ not wish to acknowledge this reality?
And persist with this absurd nonsense:
Banks extending 60 % of their lending to one third of already wealthy households to speculate in the residential property market because the RBNZ offers them an RWA capital reduction incentive, to do so.
Or this:
RBNZ cutting OCR in half five times since July 2008, causing the rich to capitalise rising discounted present values of future asset cash flows.
Seems more like "ANZ is preparing for a housing market downturn of up to 30%" (leaving them a 10% buffer). Why would they be taking away potential lending? It's their core business, to assess lending viability and sign up new loans. In a highly competitive environment, they will be losing business. At the same time, as the biggest bank they have both the largest amount of data available to make this decision (I helped build it) and the biggest potential exposure.
Again this is showing how bad the RBNZ is, in the absence of sensible regulations, the banks are having to self regulate. It means the RBNZ is blind to the risks the overcooked housing market represents. RBNZ are a rogue agency, simply not doing their job as regulator and not adhering to their mandate of long tern financial system stability.
How many ANZ mortgage holders are on Full deferment now? The banks has full visibility on them now. Money in money out. Credit cards. They know based on current finances how many of them could not even pay the interest on their mortgages right now. So once the Covid conditions allowed by the RBNZ run out in March. Their lending books will need to be brought into order. It only takes a small surplus of houses on market versus available buyers to turn prices down. Once the expectation is that prices will be falling. Then buyers evaporate.
Pretty sure that is correct assuming lending within a specific bank. It in most cases includes the family home as the primary equity point as a legacy from the loss transfer model that got way over subscribed. If you have loans spread all over the market to hide your true debt exposure, then probably not.
Yes, the foundations of a Minsky moment.
Hence why I think our housing market has ponzi characteristics - prices rise so investors have more equity, so they buy more houses, then house prices rise so they have more equity so they buy more houses, then house prices rise so they have more equity so they buy more houses, then house prices rise so they have more equity so they buy more house........(this describes the last 30 years...) when does this stop? Opposite could be true if/when cycle reverses.
Hence why I think our housing market has ponzi characteristics - prices rise so investors have more equity, so they buy more houses, then house prices rise so they have more equity so they buy more houses, then house prices rise so they have more equity so they buy more houses, then house prices rise so they have more equity so they buy more house........when does this stop? At some point we may collectively realise that we've bid prices far above intrinsic value and the equity used to buy more homes could evaporate in months if prices start falling and it could turn into a nasty feedback loop - opposite to what we've seen on the way up.
Prices start falling so investors lose equity, so banks stop lending, so prices fall further, then everyone loses more equity, so banks restrict lending even further, so prices fall further....
How to, "makes them (Banks) accountable to locals" & how "each community would have their own ‘central bank’ that they control", from The Alchemy of Banking, by @scientificecon
@ProfessorWerner
http://collegepress.org.uk/downloadarticles/ Password for all articles is SustainableBanking5 Link
The government is moving at glacial pace to implement even a travel bubble with Australia. No chance of international students next year or any restart to mass immigration. Tourism is still crushed. Yet thousands of houses will be completed in Auckland alone with Zero population growth. Mortgage holidays will end March 2021. Owners who have not made the required lifestyle adjustments by then will be encouraged to sell. The market will give back the gains of 2020. Johnny come lately specuvestors will be laid to waste. The banks know this. The pump is complete. Get some Christmas pudding in ya and prepare for the dump next year.
I think the banks are actually pretty worried. So are Orr and Robertson. They understand that any real sustained downturn could put banks under serious pressure. But not to worry, they would be bailed out again, a la 1990, (BNZ) using our money. It's all good.
In 2008 some of the best risk analysts (Taleb, Lewis, Shiller, Seastraight) told us that we must not allow corporations(especially banks) to ever become too big to fail again. Did we listen? Did we Fcuk. We will likely reap what we sow.
Yeah the last 10 years in NZ have been quite insane (in my view). As you say we will likely reap what we sow - massive private debt. Interest rates now at rock bottom. A society addicted to greed and FOMO but being 'very nice' to one another by either turning one's neighbour into a rent paying tenant, or being forced to pay taxes to house victims of this messed up game in motels. While we have the highest homelessness rate in the OECD (by a massive margin). How bloody stupid.
Sharon Zollner on twitter:
Housing unaffordability is an enormous problem in New Zealand. It requires big, bold, urgent policy action. Engineering an orderly response that leads to better outcomes is absolutely possible.
https://twitter.com/sharon_zollner/status/1338614445124308994?s=20
We have the highest level of homelessness in the OECD, nearly twice the rate than Australia that is number 2. And now 15 years average to save a deposit for a house! So typical young person starts saving at 22 (after gap-year/s and tertiary training), so will be 37 by the time they're in a position to buy a house!
For those that say NZ is the bright light, well I'm not so sure. Perhaps it was.
And once again I will point out the obvious in this whole bloody mess. MASS IMMIGRATION. It has to stay at the low levels we have now for at least another 10 years and then we might get somewhere, geez it pees me off. The Guvmint never seem to talk about it. It has to bloody stop. Think I need a cup of tea and a lie down.
Exactly.
Both population growth and investor behaviour means supply can never keep up with demand.
I would rather see controls on population growth than in estoril activity, it's getting more to the core of the problem, and as I have said in the last couple of days whacking investors could generate unintended consequences.
I think if you read the long term plans from Treasury you realise that unless we bring in lots of people to pay income taxes, the retirement of boomers is a risk of crippling the country’s finances. So what do you want - disfunctional housing market or severe recession depression with crippling taxes to pay boomers super?
Boomers can sell their houses and rent... it will happen to a lot of them... the die is cast... too much debt has been issued.
The problem is that at current valuations the current rents can only service the interest cost plus expenses. No principal can be repaid.
No, Boomers bought their properties long ago, at way lower prices than they are today. Interest rates are low, and they have massive capital from price rises over the last 20yrs, so they don't have any problems paying for maintenance and rates, or Mortgage (Int plus principle). Also rent has gone up massively. GNX do your homework please. Your talking through your...
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