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Lending restrictions aimed at curbing house price inflation could prove a boon for wealthier New Zealanders and property investors at the expense of first-home buyers.
With the number of first-home buyers reportedly dropping off, financial experts say the low deposit lending restrictions will see banks competing more aggressively and favouring established customers as they try to increase their total lending to create more scope for low-deposit loans.
"I would fully expect to see a lot of competition for those traditional mortgages and also quite a bit of competition for mortgages in the provinces," NZIER principal economist Shamubeel Eaqub said.
While low-equity borrowers were already charged premiums, banks would be looking to offer better terms to those with more capital to encourage them to borrow more.
"So it might actually be relatively cheap to get a two or three-year mortgage now.
"And if you are at, say, 60 per cent, topping it up to 65 is not a big deal from a risk perspective and that's exactly what the banks will try to do."
NZIER estimates showed that between 2003 and 2007 when the housing market was at its hottest, New Zealanders were taking out about $550 million a month in mortgage equity withdrawals to fund new cars, holidays or renovations, he said.
While that flipped during the recession as people concentrated on paying off more of their mortgage, withdrawals had increased again over the past nine months.
"So we had quite a good period when people were paying down mortgages and being very careful, and pretty much since late 2012 that's turned around."
Westpac senior economist Felix Delbruck said it was expecting to see more competition among lenders as they tried to grow their market share which would allow them to approve more low-equity loans as a proportion of their total lending.
This would mean better terms for people who had high equity, which would generally favour investors over first-home buyers.
"So fewer first-home buyers, a lower rate of home ownership but probably more property investors coming into the market."
If home prices increased the bank would probably see more borrowing against them, he said.
However, ANZ chief economist Cameron Bagrie said it was unlikely there would be a glut of borrowing.
"We're in a competitive marketplace so it's all power to the consumer. In the sub-80 per cent bracket there's still some pretty attractive deals going on.
"But let's not forget we're heading into a rising interest rate environment, so you don't just factor where interest rates are today, you've got to think about where they could be in two years' time and interest rates are going to be higher across the board."
There had been aggressive competition among banks for several years, "so I don't think that competitive landscape has fundamentally changed".
Two-tiered pricing was inevitable as banks had to hold more capital against the high-LVR loans and would seek to recover that through the higher prices.
Mr Bagrie said the decision to decline or approve low-deposit loans would depend on factors such as how many bank products the customer used and their history with the bank.
"So say you've been banking with the bank for 20 to 30 years, you're going to have a better chance than if you're new to the bank."
- Fairfax Media