Credit bureau Veda says it has evidence people are borrowing money from finance companies to enable them to circumvent the Reserve Bank's restrictions on banks' low equity residential mortgage lending.
Veda says its latest data shows a 17.7% increase in enquiries for personal loans during the September to November period compared with the same three months last year.
John Roberts, Veda's managing director, says some people who previously would've borrowed up to 90% or even 100% of a house's value to enable them to buy a home now can’t do this.
"So they take a personal loan from a finance company and then get the assistance of a broker to apply for an 80% loan-to-value ratio (LVR) bank mortgage using the personal loan as their deposit," says Roberts.
"The country’s overheated property market has created a sense of urgency for home-buyers who are prepared to go to extreme lengths to secure that all important first home. Second, third and fourth tier borrowers are meeting the deposit demand - but the interest rate charged will be higher than that charged by a bank."
Roberts says applications for personal loans are noticeably higher for Generation X and Generation Y, increasing 18.25% and 19.86%, respectively.
"Veda’s data suggests the Reserve Bank’s LVR restrictions may have curbed the house hunting for some hopeful home buyers with mortgage applications down by 7.6% for the three months of September, October and November when compared with the same 2012 period," says Roberts.
Roberts does, however, acknowledge the increase in personal loan applications is also a reflection of competing offers to borrowers to consolidate their debt to help them reduce costs.
"It is notable that as unsecured lending has increased so the number of consumer defaults has also risen. Defaults are up 42.95% for the November quarter.
The Reserve Bank introduced high-LVR "speed limits" from October 1. Banks will be measured on them from March 31 next year. They mean 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.
4 Comments
Is it not the case that the bank lending 80% or less towards a mortgage demands a signed declaration that the deposit is free and without lien? If not we are exposing depositors to an even greater risk of bank instability. Surely finance companies have a debt register that is open to regulator if not public scrutiny?
up the broker...
"So they take a personal loan from a finance company and then get the assistance of a broker to apply for an 80% loan-to-value ratio (LVR) bank mortgage using the personal loan as their deposit," says Roberts.
and who pays the eager beaver broker? (hint: not the enthusiastic borrower)
Headline: Veda says rise in personal loan enquiries
c'mon guys .. ya have'ta read the words a little more carefully .. I realise there are a lot of words and percentages and calculations and all that .. but that's been done to yank ya chain
Veda says its latest data shows a 17.7% increase in ENQUIRIES for personal loans during the September to November period compared with the same three months last year.
Enquiries are different to transacted loans. Notice the absence of that number?
While you are at it .. what's the interest rate on a personal loan from a finance company?
People will find a way around the system, but hopefully it'll be a small minority. Even if the banks do show due diligence, what's stopping a parent or friend from taking out a loan then gifting it to the potential buyer? Some people can't be saved from themselves..
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