High-LVR share drops further

Banks may stay well below their loan-to-value limits, one banking researcher says.

Wednesday, January 29th 2014, 4:01PM 1 Comment

by Susan Edmunds

The latest data from the Reserve Bank shows that the percentage of high-LVR lending being done by the mainstream banks dropped further in December.

After exemptions, lending above 80% was only 4.7% of new loans, down from 5.8% in November and 11.7% in October.

Banks can lend no more than one in 10 of their new loans to borrowers with a deposit of less than 20%.

Massey University’s Claire Matthews said it was not surprising that it had dropped. “Where there’s a limit and banks can’t afford to have it go over because of the penalties, they are going to err on the conservative side.”

She said banks would also have to allow for some preapprovals to go through. They would not know exactly when they would be processed.

Matthews said she would not expect the proportion of lending over 80% to get beyond 7%, because banks would want to leave a good buffer. “I could see it staying at this level because they’re cautious, they can’t risk going over 10%.”

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Comments from our readers

On 30 January 2014 at 7:39 am Josh said:
You said only 1 in 10 loans can be to those with a deposit of less than 20%. Is that right? I thought if a loan was made for $1,000,000 to a low LVR borrower, then 10% of the total lending (approx. 100K) could be lent to high LVR borrowers. It's not the number of loans issued, it's the amount lent to each category isn't it?

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