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Bank surprised at extent of lending drop

Fewer borrowers are taking out loans that are exempt from the new LVR restrictions than the Reserve Bank expected.

Tuesday, April 1st 2014, 3:12PM

by Susan Edmunds

It has issued its latest Reserve Bank Bulletin, in which Lamorna Rogers has written “an A to Z of loan-to-value ratio (LVR) restrictions”.

Banks are allowed to lend only 10% of their new loans to borrowers with a deposit of less than 20%.

But there are exemptions, such as Welcome Home Loans and loans for new builds, which are not counted in the 10% total.

Rogers said the bank had expected about 15% of banks’ new lending to be to low-deposit borrowers, when exempt loans were included.

But, even when exemptions are included, banks are lending only 7.8% of their new loans to borrowers with equity of less than 20%. 

That is a dramatic fall from about 30% before the rules, which Rogers said was worryingly high.

She said indicated the bank had been surprised by the extent of the drop.

“This partly reflects lower than projected use of exemptions, which are averaging around 1% of total lending, compared to projections of 5%. It is possible that the share of high-LVR lending could modestly increase in coming months as banks adjust to the new framework.”

Rogers said the early evidence suggested that the LVR restrictions were having the desired effect on house prices and credit growth. “The housing market has weakened, with seasonally-adjusted house sales down by around 13% over the five months to February.”

She said the value of new housing loan approvals had fallen by a seasonally-adjusted 7% in the three months to February.

The bank was considering the conditions that would justify the rules’ removal, she said. The bank would need to see evidence of a better balance in the housing market.

Rogers said the rules would contribute to financial system resilience by improving households’ abilities to withstand financial shocks.

“The extra equity provides a cushion against falls in house prices, reducing the risk of borrowers falling into ‘negative equity’, where the borrower owes more than the property is worth.”

« Low-equity fees face legal questionsWestpac moves on tiers, but not on LEMs »

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
ANZ 5.19 4.15 4.09 4.49
ANZ Special - 3.65 3.59 3.99
ASB Bank 5.20 4.15 4.09 4.39
ASB Bank Special - 3.65 3.59 3.89
BNZ - Classic - 3.65 ▼3.54 3.99
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 3.19 3.19 3.19
Lender Flt 1yr 2yr 3yr
Credit Union Auckland 5.95 - - -
Credit Union Baywide 6.15 4.95 4.95 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 - - -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
Housing NZ Corp 5.19 ▼4.15 ▼4.09 ▼4.39
HSBC Premier 5.24 3.35 3.35 3.35
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 5.65 3.85 3.95 3.89
Kiwibank 5.80 4.30 4.34 4.74
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - 3.55 3.59 3.99
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.69 4.79 -
Resimac 5.30 4.86 4.14 4.19
Lender Flt 1yr 2yr 3yr
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - 3.69 3.69 3.99
Sovereign 5.30 4.15 4.29 4.55
Sovereign Special - 3.65 3.75 4.05
The Co-operative Bank - Owner Occ 5.15 3.65 3.59 3.99
The Co-operative Bank - Standard 5.15 4.15 4.09 4.49
TSB Bank 6.09 4.65 4.59 4.85
TSB Special 5.29 3.85 3.79 4.05
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.34 - - -
Westpac Special - 3.65 3.59 3.99
Median 5.35 4.15 4.09 4.19

Last updated: 16 September 2019 10:03am

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