The Reserve Bank has released actual data on the extent to which banks are lending at 'Loan to Value' levels of 80% and above - the threshold imposed by the Bank Governor in October last year.
At the time the Governor stated that "From 1 October 2013, banks will be required to restrict new residential mortgage lending at LVRs of over 80 percent (deposit of less than 20 percent) to no more than 10 percent of the dollar value of their new residential mortgage lending".
Well the fact is that based on the months of December and January retail banks are not only keeping such lending below the threshold of 10% - they are actually barely touching 5% of the loans (by value).
In January just $147m of lending was made above the 80% LVR threshold representing just 4.8% of the total value of lending in the month.
Accepting that January is a quieter month this amount represents a fall of almost almost 90% as compared to August last year.
What is interesting is the extent to which this significantly reduction of lending above the 80% threshold equates to in terms of the number of first time buyers in the market.
For this analysis I have made some assumptions as full details are not available.
The data of weekly mortgage approvals published by The Reserve Bank shows the number and the total value and thereby the imputed average value.
I have made the assumption that rather than thinking high LVR loans will be at a lower than average value, they are in fact more likely to be well above the average.
The logic is that within this data set from the Reserve Bank of mortgage approvals is not just new loans but also refinancing of loans many of which may be older loans and thereby at a lower average value, whereas first home buyers representing a higher proportion of high LVR are likely to see loan values closer to say 80% of the median house price, thereby a loan of $330,000.
For this reason I have assumed that high LVR loans have an average value of $275,00 whereas the average for all loans is closer to $175,000.
This table below sets out the overall data of the average of mortgage approvals for the 22 weeks pre 1st October and the 22 weeks since 1st October.
| Total - all mortgage approvals | Number of mortgage approvals per week | Total value of lending per week | Average Value |
| Pre - 1 Oct 2013 | 6,803 | $1,212,192,555 | $178,185 |
| Post 1 Oct 23013 | 5,863 | $973,287,315 | $166,005 |
| Variance | -14% | -20% | -7% |
| Approvals - LVR over 80% | Number of mortgage approvals per week | Total value of lending per week | Average Value |
| Pre - 1 Oct 2013 | 1,102 | $303,048,139 | $275,000 |
| Post 1 Oct 23013 | 177 | $48,664,366 | $275,000 |
| Variance | -84% | -84% | 0% |
| Approvals - LVR below 80% | Number of mortgage approvals per week | Total value of lending per week | Average Value |
| Pre - 1 Oct 2013 | 5,701 | $909,144,416 | $159,471 |
| Post 1 Oct 23013 | 5,686 | $924,622,949 | $162,614 |
| Variance | 0% | 2% | 2% |
Based on the data and the assumption of high LVR loans, the data would seem to show that the massive reduction (close to 90%) in lending at high LVR represents a fall from around 1,100 such loans a week before the intervention of the Reserve Bank to an average of just 177 per week since the 1st October. Admittedly the last 2 months prior to implementation did likely see a degree of a 'lolly scramble" ahead of the changes.
The impact of this tightening of lending controls in the housing market has consequentially lead to the overall lending market being down 14% in the number of mortgage advances and 20% down in value, with the traditional lower LVR loans hardly changing in volume or average value across this period.
Clearly we only have 4 months data and the next few months will be most interesting to observe as to the trend, but at this point in time the data would seem to point to the view that the retail banks are being tighter in their implementation of the Reserve Bank's policy restriction than required - significantly impacting the property market.
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The above article was written by Alistair Helm, and is republished with his approval. The article was originally published on Properazzi here
17 Comments
For LVR's you need to read Steve Keen's piece on it IMHO. In that he comments that small ie 1% changes (per year) due to leverage through the system have big impacts. So getting to even 80% in a decade let alone 75% is a big risk.
RB as "paper pushers", well frankly we didnt have a huge meltdown in 2008 and indeed are in a slow recovery, or are at least breaking even despite the impact of Pollies, both National and International and high energy costs.
I'd be more worried, (and indeed am) about our continued willfull blindness to the loomhing energy crisis by our Pollies.
This piece lays it out well,
http://ourfiniteworld.com/2014/02/25/beginning-of-the-end-oil-companies…
regards
.... a correction of Hickeysterical proportions is on the cards now more than ever .... that housing bubble has barely stopped inflating at any stage since 2002 ....
The catalyst to pop the bubs is never so obvious ..... it could be the current poor manufacturing statistics coming out of China , for all we know ..... ripples from across the globe ...
.... it won't matter one whit to the big 4 Aussie banks , they've got Kiwis hog-tied with their monster home loans .... they'll bleed us dry , regardless of whether we sink into negative equity ...
Wakey wakey Sheeples !!!!
A rare moment in time , Mr PDK , where we see eye-to-squinty-gummy-eye ...
... there's a swag of " hot " overseas money in our housing market ... " hot " in that in the blink of an eye-to-eye it can rip off to some other locale , Crimea Fall-Out Bunkers Inc .... or somesuch ...
When 10 to 12 % of the dosh slopped into kiwi houses does an overnight flit ( if that's possible ) to some other jurisdiction - given that modern investors have the attention span of a hyperactive mosquito ( and less charm & wit ) - POP ... de bubble goes POP !!!!
The most likely first centi-billionaire in the world will be Wild Bill Gates , that excitement machine from Microsoft .... who sells shares in his company less often than you sell your family home ...
... don't make a gnat's fart in a typhoon of difference to Gate's fortune that Microsoft stock has traded 8 hours per day every weekday since the company was listed several decades ago ....
When you're onto a winner , you ride that sucker for all you're worth pardner .... yeeeee-hawwwwwwwww !!!!
Given their rhetoric has been so consistant over the last 6 years, no I dont they are positioned for falls. Plus of course they are middle men, they see themselves taking a cut no matter what the situation...plus,
My main reasoning is their bonuses depend on the short term gains of the bank no matter the risk of an implosion. So really its in their own self-interest as individuals to take huge risks with others money and thats in conflict with the business and depositors interest.
You get what you pay for IMHO.
regards
Its possible that there might be much more monetary easing in years to come. Janet Yellen is probably going to reverse the taper when the US admits there's no recovery. While here in NZ Graeme Wheeler by raising interest rates has just given himself breathing space to lower interest rates at some point in the future, perhaps even as low as 0.25% like the Europeans CB.
They (central banks) probably think a global Weimer republic type inflation is preferable to bail ins although the effects would be stealthy similar. Perhaps everyone is looking at Greek haircuts and bail in documents but forgetting about hyperinflation.
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