Reins loosen on banks' low-equity home loans
The Reserve Bank's stranglehold on low-equity home loans is finally starting to loosen, going by 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 with $1.19 billion immediately before the rules came into force.
That was well under the "speed limit" at 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.
The Dominion Post