First-home buyers taking out mortgages with less than a 20% deposit hit their highest numbers since LVR restrictions were introduced, according to the Reserve Bank’s latest figures.
Data shows that loans to non-investors with LVRs above 80% accounted for 10.2% of total lending in July, compared to 8.6% in June – the highest level since the Reserve Bank made the first move to try and cool the housing market.
Loan to value ratio restrictions were put in place to discourage banks from extending loans to ‘high-risk’ borrowers who were likely to struggle if the interest environment or personal circumstances changed, however it has eased them since the beginning of this year.
The Reserve Bank kept the Official Cash Rate fixed at 1.75% with changes not expected until the beginning of 2020, though the market is now predicting a 32% chance of a rate cut by next August.
According to Glen McLeod, mortgage broker at Edge Mortgages, the market is still very hard for first home buyers who do not have a 20% deposit, and many of the loans he handles are Welcome Home loans with up to 90% LVR. With mainstream banks implementing increasingly rigorous criteria, getting a pre-approved mortgage with less than a 20% deposit is “almost impossible,” and McLeod says non-bank lenders are not rushing in to help either.
ASB chief economist Nick Tuffley said the rise in high-LVR lending should be expected given the Reserve Bank’s eased restrictions, and claims the reacceleration of house prices and borrowing are the factors that will have the greater impact on monetary policy.
BNZ’s head of research Stephen Toplis says the Reserve Bank may be more relieved than concerned if the housing market starts picking up a little, as the current ‘soft’ market could weigh on GDP growth.