Interest-only mortgage 'irresponsible'
Westpac's new 30-year, interest-only mortgage has been decried as irresponsible and likely to fuel property investor speculation.
Details of the new loan product were discreetly fed to mortgage broker channels in recent weeks. The offering is a major shake-up to the market, with the term three to six times as long as the maximum allowed by rival banks.
Wellington mortgage broker Simon Rule said the three-decade loan had surprised brokers and rival lenders, and was "disappointing" to see.
"You're basically encouraging borrowers not to make any principal repayments on their mortgage whatsoever," he said.
Once the term is up, borrowers can either repay the loan in full or switch to a standard mortgage, implying a total length of 50 years.
"You can get 50-year mortgages in America which mean you pretty much have a mortgage for life, which is not responsible at all," said Rule. "I certainly would not be recommending customers do any more than 10 years interest-only."
Westpac's chief product officer Shane Howell said owner-occupiers were eligible, but not the target market.
"It's really specifically geared towards investors . . . to give them the best opportunity to take advantage of the tax benefits," he said.
Property investors typically use interest-only loans to maximise cashflow, as interest is fully tax-deductible while principal repayments are not. The goal is to build equity through rising house prices, at the risk of being left underwater if the property market falls.
Howell said the 30-year loan was responsible. Customers were assessed as if they were paying principal and interest throughout, with reviews every five years to make sure they could still service the loan, he said.
Howell also said many investors were likely to sell and cash in any capital gains before the 30-year period was up.
About a quarter of Westpac's mortgage portfolio is interest-only, with slightly lower proportions reported by BNZ and ANZ. Applying those figures across the industry suggests New Zealanders are treading water on about $40 to $50 billion worth of mortgage debt.
Australian regulators are keeping a wary eye on interest-only loans, which are fuelling a property investment boom and have triggered cautions from ratings agencies. However, the Reserve Bank of New Zealand has only just started collecting information from the industry, which it will begin publishing next year.
The central bank has made no mention of the loans or any possible policy actions, and a spokesman said it could not make any comment.
Westpac's move is specifically aimed at tapping into the growing investment market.
"There was resounding feedback in the customer research that [investors] were asking for a product of this nature," said Howell.
In an article published recently, the bank said there was a clear trend of investors filling the void left by first-home buyers struggling with low-equity lending rules.
"We noticed it in the market and thought, we'll target it." Howell said.
The bank's drive also includes a new suite of online tools and resources, and the addition of a team of specialist bankers to its sales force.
Property Investors' Federation executive officer Andrew King said a lot of rental property owners would be interested in the 30-year loan, which would add flexibility.
"From the owner's point of view, I don't think there's much risk to it at all. If they want to to pay off equity, I'm sure they can," he said.
King said other banks often let investors roll over interest-only loans when they came up for review, leading to longer terms than advertised.