High-LVR mortgage loans at their highest levels

by Ksenia Stepanova30 Aug 2018

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.

 

COMMENTS

  • by perry bell 31/08/2018 12:45:00 p.m.

    As a broker we must use bank calculators and they have to fit, occassionally the bank may work outside the calculator, but that would be rare. So I find it really interesting when a couple get a 95% loan, have more debt than deposit,($25k) and have lived in NZ approx 1-2 yrs. They are not professionals, have high HP bills and child care bills, yet the bank lends 95%. There is no way I could have got them a loan with those figures. Second client living in Rotorua buys a home and has to have boarder income to make the loan work, she definately cannot afford on her income, she is on a single income and is really stretched, now cannot afford her rates or life insurance. The bank has put her in a difficult situation, and there is no way I could have put that through for her, it would not have been accepted in Rotorua. The banks are doing loans we cannot procure, and under new rules probably shouldnt be doing them either. I have another story but you get the drift, three different banks
    offering loans that mortgage brokers would could not get through broker units. One rule for them, and another rule for brokers.

  • by seandnz 4/09/2018 12:33:52 a.m.

    Under the CCCFA does not the lender have a duty of care to ensure the client can afford the loan? If I recall correctly, the CCCFA states that you cannot provide a finance contract knowing that the contract could cause severe financial hardship. I am paraphrasing here but I remember when the CCCFA came out, it was pretty tough but no real enforcement, but if the clients you mentioned were to end up in a mortgagee sale, the whole loan could be null and void from outset. That's my opinion of course, and open for discussion, does anyone else here agree or disagree?

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