Home-loan brake could fail
New home-loan rules could divert billions of dollars away from the overheated property market, but experts think the plan will fall flat.
High loan-to-value (LVR) ratio mortgages on small deposits have become increasingly popular with most banks.
Reserve Bank figures show mortgage lending grew by $9.2 billion in total in the year to May.
The central bank has raised concerns that 30 per cent of that growth was lent on deposits smaller than 20 per cent. It is understood that within a week it will introduce "speed limits" restricting banks' exposure to high-risk loans to 12 per cent of their new lending.
Once the limits are imposed, banks are likely to cherry-pick borrowers with the best credit ratings, saving histories and account conduct.
If the regime had been in place for the past year, it would theoretically have stripped as much as $1.8b out of the housing market. That is the equivalent of 4600 houses at the national median price of $400,000.
But not all of the banks would feel the same pain under the new regime.
While Westpac has steadily reined in its high-risk lending ahead of the changes, ASB has been scrambling to catch up in recent months.
The Auckland-dominant bank would be one of the biggest losers, as would ANZ and Kiwibank.
Massey University banking expert David Tripe said the Reserve Bank's limits might not have the desired effect on house-price inflation.
"The rate of house-price growth currently by historical standards across the country as a whole is quite low," he said.
The real hotspots were Auckland and Christchurch, largely because of supply issues which could not be resolved quickly, Mr Tripe said.
"Making it more difficult for people to buy is trying to pretend that there isn't a problem.
"If it was being done in conjunction with something else, we could feel rather more positive about it."
Tripe also suggested that both banks and borrowers would come up with creative ways to get around the rules.
"They will either go through various workarounds, by using the services of other lenders, or they'll get loans from other sources."
Turning to second-tier lenders could ultimately work against the central bank's mandate to maintain financial stability, Tripe said.
The Reserve Bank itself has acknowledged the shortcomings of the scheme, and indicated it would not prevent families, for example, from lending deposits to relatives.
The bank has indicated that it could give as little as two weeks' notice for lenders to adjust their policies.
Reserve Bank spokesman Angus Barclay said it had no comment to make regarding any impending announcements.
- © Fairfax NZ News
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