Banks 'relaxing a little' over loan rules

Last updated 17:05 26/03/2014

Relevant offers


Budget Buster: Financial fasting for 'Austere August' Your Money: Five mortgage mistakes to avoid The costs of owning a home have gone through the roof Fraud accused Mark Ivil makes no plea on $4.28m fraud charges FMA issues first ever stop order against Green Gardens Finance Trust The dreaded provisional tax warrants more debate with business community Martin Hawes: Race to financial freedom Insurers order probe into whether commission is promoting 'churn' 'Open-ended' bridging finance popular in hot Auckland market Southern Cross reveals travel scams Kiwis fall for

The Reserve Bank's stranglehold on low-equity home loans is finally starting to loosen, according to the latest bank-lending statistics.

That could be good news for house hunters, some of whom have struggled to get into the property market since new rules were introduced in October.

Banks have been banned from allocating more than 10 per cent of their new lending to borrowers with less than 20 per cent equity.

To avoid running foul of the central bank, major lenders have slashed their high LVR (loan-to-value ratio) lending to a small fraction of their total loans.

High-LVR lending reached a new monthly low of $147 million in January, compared to $1.19 billion immediately before the rules came into force.

That was well under the "speed limit" at just 4.8 per cent of new lending, or 3.8 per cent after accounting for various exemptions.

But the latest figures for February show that for the first time, the trend has reversed slightly.

High-LVR loans totalled $200m, representing a share of 5.2 per cent, or 4.2 per cent after exemptions.

Those exemptions include Housing New Zealand's Welcome Home Loans, the refinancing of existing loans and bridging finance.

A more recent exemption for loans for new builds, which was a surprise backdown from the central bank, has not yet been included in the reported figures.

iLender broker Jeff Royle said banks had begun to relax slightly, and there was capacity for the right borrowers.

"I think the expression is 'cherry-picking', and looking after their own," he said.

"In high-LVR, they're not particularly interested in gifts from mum or dad, or you've just sold your Ferrari. They want to see a nice history of saving."

Banks were also looking for a "really healthy surplus" on borrowers' ability to service the loan, Royle said.

The Reserve Bank started tracking banks' LVR lending in August last year, after becoming concerned about the possibility of systemic risk to the financial sector.

A major fall in house prices or shock to the economy could leave borrowers exposed, and in turn threaten the stability of the banks.

The Reserve Bank's main tool for putting the brakes on credit growth is the official cash rate, which it raised this month in the first of a series of planned increases.

Ad Feedback


Special offers

Featured Promotions

Sponsored Content