There is already evidence that home buyers are looking to circumvent Reserve Bank "speed limits" on low equity mortgages and increasing their debt burdens an Auckland mortgage broker says.
The head of North Shore-based LoanPlan Christine Lockie said banks had already started restricting low equity mortgages ahead of the October 1 deadline, with a combination of interest rate and low equity fee increases, coupled to a halt on low equity pre-approvals - but buyers were determined to forge ahead regardless. See here for articles about LVRs.
"If people want something, they want it and neither the government or the Reserve Bank is going to stop them getting at it. This is an experiment by the powers-that-be and it will go badly – we're already seeing evidence of this," she said.
"In effect, all the Reserve Bank is doing is making our market more accessible to overseas buyers, shutting out poorer Kiwis and increasing consumer debt. I am seeing parents are taking on more risk to offer equity as collateral security for their children, or raising their own debt levels to provide deposits."
Lockie said other options people were exploring included second mortgage funding and private funding - which was available for mortgages at 90%-plus.
"Of course all these options are higher risk, more expensive and achieving nothing but more debt."
Lockie said banks were already not offering the same discounts, refusing pre-approvals above 80% and/or increasing low equity fees. Some recent examples included ANZ increasing its low equity fees to up to two per cent of the loan amount, and Westpac has raised interest rate margins for lending above 80%.
"Banks were using external insurers, but have now started self insuring – even Kiwibank. They have also chopped broker discounts in this area. In other words, they are covering the cost of insurance themselves, but charging the client for it. Will this be an alternate source of revenue for the banks?
"Despite the low equity lending restrictions which we are seeing implemented before time – partly because there are already so many pre-approvals over 80 per cent out there – houses in Auckland continue to fetch outlandish prices.
"For some commentators to say that overseas buyers are not contributing to high prices and the fierce housing competition is naive - we're on the ground and we see evidence of it every single day. The trouble is the origin of the buyer is not reflected in records or in sale-and-purchase agreements."
Lockie urged buyers to seek impartial financial advice from an experienced adviser before making decisions which could come back to bite them.
"The restrictions are going to make finance a lot more expensive, some people are going to make a lot of money and consumer debt will increase," Lockie said.
9 Comments
I see where you are coming from but I suspect its too small a % to actually reduce the banks exposure by a significant amount. I do think if there are second mortages etc that default on these may not effect the banks but its sure going to burn lenders and the investors behind these devices of economic destruction....not a game I'd play today.
regards
.
Well, if one takes the view that in 2012 about 16.3% of the value of an "average" 370000 house was unexplainable by long term factors traditionally very good at explaining house prices (household debt) and another few percent is added strain on household debt caused by high house prices, you get to near the same 20% overvalued figure as international agencies estimate via other means (which, to be honest, I find a little spooky). In a sudden correction mortgagee sales with a LVR at 20% would wipe out the individual and leave the bank unaffected.
Note, while the long term internal to NZ pressures are to bring prices back into line, I don't actually expect a sudden correction.
I read the headline and muttered under my breath "So what!"
1) of course mortgage brokers are going to say that as it reduces the # of mortgages which mucks with their money, and
2) some people in some circumstances will absolutely get around it and
3) so what if some get around it! Not having any limit means EVERYONE gets around it.
If I went to a doctor and I had a bullet in me (probably from a mortgage broker these days) and they said they wouldn't try to pull it out because they couldn't guarantee they would get 100% of it I'd tell them to pull out the f*cking bullet (and a few other choice words). It's the same thing!
Everytime I hear a mortgage broker whine it's like an angel singing. Good riddance to them - and this countries fixation with property.
I wear two hats on this.
First one says these restrictions are fundamentaly flawed and only discriminate against ordinary Kiwis looking to get into thier own home. They won't stop the market because Supply is the issue, not demand. I hate to think what the impact will be in small towns/rural, not good is my take.
The second hat as a Broker is yipee! This is the best news for Brokers in years as there are alternatives to the Banks and they are only accessed via the Broker channel. So more, not less, business for Brokers and the Banks win again. Look at it this way, a Westpac customer gets declined, goes to a non Bank for the mortgage but the Bank retains the customer...win win. Except the customer will end up paying more as rates and fees for 90% are higher to cover the perceived risk.
So the restrictions will not stop the maket as they only effect a small sector of the buying public, investers both foreign and domestic are not affected and with Auckland growing by 65 people a DAY the pressure on the housing stock is still growing.
Jeff Royle iLender
On one hand those of us who purchased homes between the 60s and 90s at told it is harder today....yet we lived under LVRs...and for high cost items like near new and new vechilces
Ok our homes didnt have the added values of curtains, carpet paths and garage.....take that off todays prices.
LVRs where orginally introduced becacuse of bad busness practices of lending instututions, which eventually caused the sub prime issues of recemt years.
So on one hand we have LVR being replaced for better banking stabilty.... NOT restricting house price inflation.......and everyone jumping up and down with the "poor me" syndrome. Forgetting what happened already what happened when they where taken off..
The problem/ issue is NOT the LVRs being reinstated but that they where removed and that proved to be a mistake...unfortunatley because of the short sighted reganist , thatcherism policies we now have the unfortunate issue of the markets having to restablish and the inconviece till they once again settle down to the change.
Phew...Keyser Soze and Ostrich (very apt name) Dudes, I don't even know if you read the same article as I did. If you can find one "whine" or one single piece of "fluff" in her comments I'll buy you a coffee !.
I think her account of what's ACTUALLY happening at ground zero is in fact very accurate. Anyone in any way remotely involved with finance will already have experienced what she has and will know it's bang on the button.
Mates you both have some real personal issues. I'd deal with those first and then come back and make any financial commentary once I got level on the medication. If you're hearing "angels singing" Keyser, you've got some major things going on upstairs!! .
It is this environment which creates a need in the market for " circumventors " to arise , and take advantage of desperate first home buyers ....
.... and the seasoned veterans , the Ollie Newlands and BigDaddy's will be rubbing their hands for joy ... ( as they should , they're just playing by the stupid rules ! ) ...
We need to construct more houses ... hello Wild Bill , hello Wheeler dealer ... anyone listening ? .... increase the supply , guys ....
... feck it all ... no one is listening ... off to a Gummy Bar to drown my sorrows in Gummy Beer ...
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