Two of the country's biggest banks - ASB and ANZ - have now stopped offering new home loans to customers with deposits of less than 20%.
ANZ had earlier confirmed on Monday that it was taking a 'pause' from lending above 80% of the value of a home, citing Reserve Bank limits on high loan to value ratio (LVR) lending. ANZ had only reinstated under 20% loans in February after being among a group of the big banks taking time out from low deposit lending last November.
Then, in response to a query from interest.co.nz, the ASB responded on Tuesday that it had "temporarily" stopped offering new home loans to customers with an LVR (loan to value ratio) of more than 80%.
Meanwhile, other large banks at this point don't appear to be following the lead of ASB and ANZ. Westpac, BNZ and Kiwibank say they are all still offering loans for those with those with deposits less than 20%.
In explaining the ASB's action, an ASB spokesperson said: "We currently have a full pipeline of customers who are pre-approved for a home loan with an LVR above 80% (less than 20% deposit)."
She said therefore to ensure that ASB continued to adhere to the Reserve Bank of New Zealand’s (RBNZ) requirement to have no more than 10% of owner-occupied mortgage lending at this level, the temporary halt had been made.
"We’re continuing to document loans for customers currently in our pipeline with an LVR above 80% who find a property within their pre-approval timeframe, and we’re still taking applications from customers who meet the RBNZ’s high LVR exemption criteria (which includes lending up to 90% LVR for customers looking to build a new home)," the spokesperson said.
"We will continue to assess our portfolio in accordance with RBNZ’s requirements and will look to recommence this type of lending as soon as we can."
ANZ was approached for additional information on its move on Tuesday, and asked what advice it had for customers with limited deposits as to what they can do.
"Getting a deposit together for a new home can be challenging, given each customer is different we can only really give broad information," an ANZ spokesperson said.
"We are committed to helping first home buyers into homes and are supportive of and open to the different ways a customer may choose to do this.
"We would note the steps we have taken are a temporary measure and as soon as we are able we will commence providing approvals for low deposit lending again. Lower deposit lending for new builds remains an option for people," she said.
"If you’ve been a KiwiSaver member for at least 3 years, you may be able to withdraw your KiwiSaver savings and/or apply for a First Home grant from Kāinga Ora - Homes and Communities (previously known as Housing New Zealand) to help you into your first home.
"For those who have family who can help them there are also options, we would always advise that family members get independent legal advice when they go down this avenue."
Asked about the demand they were seeing for low deposit loans at the moment in the rising interest rate/falling house price environment, the spokesperson said: "We generally see a pretty steady demand for low deposit lending.
"The rising interest rate environment and softening of the housing market has meant we’ve started to see a drop in demand for overall lending."
The move by the ANZ and ASB comes at a time when house prices have already fallen about 6% from their peak last November - and are expected to fall further, while mortgage rates are going up and up, with most rates now above 5%.
But other banks contacted say they are still offering high LVR loans - though it's clear this is subject to individual circumstances of customers.
A BNZ spokesperson said BNZ has not changed its low equity settings "and continues to lend to customers with less than 20% deposit, depending on the specifics of the deal".
"All lending decisions are made on a case-by-case basis."
Westpac says it "regularly" reviews its housing book against the RBNZ LVR limits "and currently have no plans to pause lending to customers with deposits of less than 20%".
A spokesperson said Westpac had "a number of options" available to support first home buyers with small deposits including Family Springboard, Kāinga Ora First Home Loans and Kāinga Ora First Home Partner. Customers could also consider purchasing a new build which is exempt from high LVR restrictions.
The spokesperson said demand for high LVR lending has been "consistent" over the past couple of months.
Kiwibank's Senior Product Manager Home Lending Pip Maxwell said the bank was "pleased to be able to continue to support" first home buyers with less than 20% deposit home loans through programmes such as First Home Loan, low equity new builds, and other home ownership pathways such as Co-own, which she said was "another way for Kiwi to obtain home ownership by teaming up with friends or whānau to get on the property ladder".
"For any over 80% LVR lending that is subject to RBNZ restrictions, we do prioritise Kiwibank customers who have us as their main bank and are looking to buy their first home. Our home loan specialists can help customers understand the various options which may be available to them."
45 Comments
Slumping prices: Banks pledge not to strip borrowers of 'special' mortgage rates, if their equity falls below 20 per cent
https://i.stuff.co.nz/business/money/128141126/slumping-prices-banks-pl…
I think Westpac and Kiwi have also been pretty coy with their answers. As I understand from Broker friends they also arent really doing high LVR that require going through the speed limit. They (like ANZ and ASB) are still doing exemptions like New Build, and Westpac & Kiwi have the reasonably restrictive First Home Loan (income restricted)
So what happens when a large number of loans fall below 80% LVR and they have no LMI? Under the Basel rules, capital requirements are based on risk weightings, and the more these loans fall into the higher risk categories, the more capital banks are going to have to hold against them.
Don't think for a minute that banks will protect borrowers against their own interests or those of their shareholders (in this case, the Australian banks who will have their own problems to deal with).
I agree. Seeing comments on here that banks will just carry on and let people continue to buy and sell while underwater. To me that's wishful thinking.
I wouldn't be surprised if the banks start rolling out means tested mortgage payments for negative equity. Higher rates coupled with higher principal payments up to 1/3rd of household income. Circumstances change (pay rise/promotion) payments go up.
I admit I did chuckle when I saw Pragmatist reply. But i'm not sure he was actually talking underwater mortgages, but it was more around moving sideways in the market at 100% LVR and portability of mortgages. I think the RBNZ has a comment in their LVR documentation around mortgage portability and LVRs.
100% is as good as underwater. I cant see a bank allowing for a security to be sold and not requiring a pay down of the loan at the same time to return it to an appropriate LVR. A substitution of security is a credit event.
As per previous RBNZ reporting, loan holidays and restructures to interest only are also credit events. https://www.rbnz.govt.nz/statistics/series/lending-and-monetary/bank-cu…
That's because affordability needs to be assessed at the same time.
It was YOU that said your loan is portable even if you sold and bought and the new security was worth less than the original one at origination.
Example, borrowing $800k on a $1m property, which then falls to be worth $800k. While the bank may not call in a capital injection (they can if they want to but in practice never do) IF you then sold that $800k house and bought a different $800k house, the result would be different.
Because the change of security is a credit event (the bank has a requirement to check you can still service) , the BASEL rules definitely require the risk weighting to be re-assessed at 100% LVR, and I don't believe any bank would approve that. They would take the $800k you got as a settlement and require $160k of it to pay down the loan to 80%. It's exactly what they do if you have multiple securities and has been widely reported on.
This comes from 25+ years in and around banking and brokers.
Refer to point 8 of the following LVR restrictions guide. It does mention how an LVR event does not need to apply to existing loans and moving houses. The last sentence of the quote is key though, "how the proceeds of sale are split" depends on the bank. And the bank will have priority.
Note also that there are some possible exemptions in the case of refinancing of existing loans, replacing an existing loan with a new loan if the borrower moves house (portability), and bridging loans during the sale and purchase process (see “Are there any exemptions or special cases to the LVR restrictions?” below). The Reserve Bank considers that repaying part of a mortgage (selling one or more of a pool of securities) need not constitute a new commitment as defined by the Reserve Bank, so such activity can be considered outside the scope of LVR restrictions. However, more generally, how the proceeds are split between borrower and bank when a property is sold will depend on the mortgage contract and the policies of the bank you’ve borrowed from.
Yes, that's my point. RBNZ loan portability is all about how the transaction needs to be treated for the purposes of the speed limit legislation.
In terms of capital and risk, the Bank will always look to de-risk in such a situation - because it would be more expensive (capital) and risky (LVR) and provides an opportunity to reduce that cost and risk. If someone thinks they can move from an 80% loan to a 100% loan simply because they are exempt from speed limits, "you're dreaming mate".
Except you are comparing the historical valuation of the existing security with the current value of the new security. If the new security is the same or higher value than the existing security why would the bank not swap it?
And no, I never said they would do it at 100% LVR, that's your nonsense.
"If the new security is the same or higher value than the existing security why would the bank not swap it?"
Because they will re-assess the appropriate level of borrowing against it. Read the thread - you said they would accept 100% in the scenario house prices dropped 20% and a borrower found themselves selling with no equity. I don't see that happening.
Ironically, you're not especially living up to your nom-de-plume. Ultimately, you can think what you like... but the reality is a bank will absolutely re-assess your equity position when you sell, as part of the overall credit application they are required by law to undertake.
I tried to search, but they don't disclose total underwriting they have done, although LMI is also added. Max income is $150k for a couple -- and most lenders will apply some rigorous surplus requirements, so imagine this will limit borrowing to about ~5x times income.
It was very low before the caps moved.
https://www.rnz.co.nz/news/national/464797/underwhelming-uptake-for-kai…
New caps are here:
https://kaingaora.govt.nz/home-ownership/first-home-grant/house-price-c…
Using a couple at 2x 75k income, with a DTI of 41% after-tax, stress test at 7.26, this gives a maximum borrowing amount of 560,000. (Not that we have a DTI).
The income caps remaining the same basically made moving the caps lip service, for the time being.
The First Home Loan doesnt have caps on property value - the First Home Grant does though (the one you linked to). They've made things quite complicated. Was talking to my sister who is hopeful FHB over the weekend and when they were googling it, oneroof said something different to Kainga Ora site apparently. All very messy
Given the huge price increases in house building costs, I wonder when they will stop giving mortgages for new builds too? Essentially a 20% price increase baked in for the next month means a lot of places can't be built as the position of potential borrowers would put them underwater due to price increases while the house is being built.
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