Westpac and ANZ stop lending to foreign property buyers
Westpac and ANZ have stopped issuing home loans to foreign buyers in a move that could help first home buyers.
A Westpac spokeswoman said the bank would no longer lend to non-resident borrowers with overseas income.
"The tightening of policy reduces risk and will contribute to further strengthening our home lending portfolio with customers who we have a deep and long term banking relationship with," she said.
Borrowers on temporary resident visas would only be accepted if they had both a New Zealand address and New Zealand based income.
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Westpac also reduced the maximum allowable loan to value ratio (LVR) from 85 to 70 per cent for New Zealand citizens and permanent residents with overseas income.
A loan-to-value ratio is a measure of how much a bank lends compared to the value of a property.
The move comes shortly after Westpac announced its special home loan rates no longer apply to loans for business or investment purposes.
An ANZ spokesman said it was also restricting home loans to foreign buyers that relied on overseas income.
ANZ's home loan restrictions to foreign buyers include:
- A maximum LVR of 70 per cent is applied
- Loans are restricted to owner occupied properties
- Boarder income is not permitted
- No interest only lending will be available
- ANZ Flexible Home Loan will not be available
- Loans will not be available for the purchase of bare land or construction
- Lending is only available to individuals
- Refinances are available, however no additional lending is permitted
- No cash contributions available
- Existing pre-approvals will be honoured
New Zealand passport holders living overseas purchasing a property funded by overseas income were exempt from the restrictions.
In May data collected by Land Information New Zealand (LINZ) showed just three per cent of homes were sold to overseas residents in the first three months of 2016.
ANZ has also tightened its lending criteria to residential property investors by stopping lending for empty sections, and apartments off the off the plan.
Until recently there was no difference in New Zealand between home loan rates offered to owner-occupiers and those offered to investors.
Changes by the Reserve Bank of New Zealand last November required all banks to hold more capital for securities classed as investment property, making investor property lending more expensive for banks, she said.
In Australia owner-occupiers pay about 25 basis points less on home loan interest rates than investors.
Canstar group manager of research and ratings Mitchell Watson said Australian banks started differentiating rates about 10 months ago and there had already been a reduction in the number of investment loans being issued.
In New Zealand investors have been blamed for driving up prices in Auckland's heated property market where, according to QV, the average house price sits at $955,793, which is 65 per cent more than the national average.
The Reserve Bank estimates that across Auckland, investors accounted for about 40 per cent of all residential purchases last year.
Last year banks were required to cut lending to borrowers buying an Auckland investment property with a deposit of less than 30 per cent.
Australian lending rules were tightened after banking regulator, Australian Prudential Regulation Authority, required banks to slow growth investor loans to less than 10 per cent a year.
That prompted banks to demand bigger deposits from investors, tighten credit assessments, and raise interest rates.
After the changes were introduced new lending to property investors dropped to the lowest level in two years.
Watson said higher interest rates for investors reduced overall demand for housing, increasing availability for owner-occupiers.
If similar measures were introduced in New Zealand it would provide softening in the market, he said.
Watson said a 25 basis point increase on interest was a material difference. For example a $5000,000 loan on a two-year fixed rate of 4.51 per cent costs $1879 a month in interest.
A 25 basis points increase would raise monthly payments to $1983, or $1248 a year.
Independent economist Shamubeel Eaqub said a difference of 25 basis points would have a marginal effect on investor borrowing in New Zealand.
"It would take a bit of pressure off and it would tilt the field in favour of owner-occupiers." Eaqub said.
But Auckland investors were ultimately chasing capital gains, not yields, so a small increase in interest rates would not deter them.
"It's not going to be enough in a hot market like this where the real motivation is capital gains."
Property Institute chief executive Ashley Church said a 25 basis points difference in interest rates would not be a disincentive to investors.
"If it was 75 [basis points] or 1 per cent you would start to get some push back," Church said.
ASB said it had made not changes.
"ASB keeps its credit criteria under review to reflect current market conditions and, to date, has made no change to the home loan lending policy for non-New Zealand residents."