Loan limits to benefit 'equity rich'
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New restrictions on risky home loans might leave first-home buyers out in the cold, but could spell good news for most home-owners.
The Reserve Bank is expected shortly to introduce "speed limits" which will more than halve the number of low-equity mortgages written by the banks.
The rules are aimed at pouring cold water on the overheating property market, and will make it harder to take out a mortgage with a small deposit.
Squirrel mortgage broker John Bolton said banks would turn their attention to other sectors as the riskier lending dried up.
They would compete even more fiercely for business in the lower, safer loan-to-value ratio (LVR) brackets. Those who have a built up a decent chunk of equity are likely to get significant price discounts over those who have not.
The central bank is not expected to make an exception for first-home buyers, despite pressure from the Government and outrage from both Labour and the Greens.
Bolton said the restrictions appeared to favour the wealthy, as well as older property investors.
"The person that's unfortunately going to miss out in this scenario is good, young people with probably reasonable incomes, not stellar incomes, who don't have rich parents."
Highly geared investors would also lose out, as they tended to be a riskier bet for the banks than owner-occupiers.
Property Investors' Federation president Andrew King said the policy would probably hurt first-home buyers more than those with multiple properties.
Investors who were not stretched too thinly would be able to put down a 20 per cent deposit, benefiting from better bank deals and reduced buyer competition.
Buyers whose parents had the means to lend or gift them a deposit would also be able to dodge the strictures. Aspiring first-home buyers with lower incomes or less-than squeaky clean credit histories are likely to be the other big casualties.
Bankers Association chief executive Kirk Hope said the Reserve Bank had targeted the high-LVR space because those borrowers were at a greater risk of default.
But he said the limits could possibly be counterproductive if they stirred up more demand in the lower-LVR brackets.
"When this policy's implemented you could expect to see that part of the market being pretty hot," he said.
The Reserve Bank has made no public comment about when LVR limits will be introduced, or how long they will last. Sources say it informally asked banks to prepare for limits last week.
- © Fairfax NZ News
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