New Zealanders forced out of the housing market by new lending restrictions are increasingly turning to finance-companies to boost their deposits, Australasia's largest credit reference agency says.
Data released today by Veda shows inquiries for personal loans increased 17.7 per cent increase from September to November compared with the same time in 2012, while more people were defaulting on their loans.
The Reserve Bank introduced low-deposit lending restrictions on October 1, meaning banks could lend only 10 per cent of their total mortgage loans to people with deposits of less than 20 per cent.
The Veda data suggests concerns the policy would drive desperate house hunters into the arms of more expensive second-tier lenders to make up their deposit shortfall were being realised.
Veda managing director John Roberts said people who would previously have borrowed up to 90 or 100 per cent from the bank to buy a home were looking elsewhere for their deposit.
These people were taking out personal loans from finance companies, then using a broker to apply for a bank loan.
"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," Roberts said.
"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."
Banks were also charging higher interest rates and low equity premiums to those people who did obtain a loan with deposits of less than 20 per cent.
Roberts said applications for personal loans were up 19.86 per cent for Gen X, or those aged 27 and under and 18.25 per cent for Gen Y, for those aged 28 to 43. They were up 14.8 per cent for baby boomers.
At the same time, mortgage applications were down by 7.6 per cent for the three months when compared with the previous year.
Veda did not provide specific figures, saying the information was commercially sensitive.
The number of people defaulting on their debts jumped up 42.95 per cent for the November quarter as the amount of unsecured lending has also risen, Roberts said.
The aim of the Reserve Bank's policy is to lessen the risk posed to the economy by the rampant house market.
The news comes as the latest BNZ-REINZ Residential Market Survey suggests first-home buyers, who made up about a quarter of all buyers at the start of the year, are increasingly being locked out of the market.
The report released today and which surveyed 587 real estate agents, said that number had dropped to about 15.3 per cent this month.
A total of 78.34 per cent of the agents reported seeing fewer first-home buyers.
- Fairfax Media