Higher-equity borrowers pick up mortgage slack
A fall in the value of low-deposit lending has been offset by an increase in lending to borrowers with lower loan-to-value ratios (LVRs), new Reserve Bank data shows.
Thursday, November 28th 2013, 2:22PM 
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by Susan Edmunds
The bank is releasing data on high-LVR loans on a monthly basis as part of its monitoring of the new LVR regulations.
From October 1, banks have only been able to lend 10% of their new loans to borrowers with a deposit or equity of less than 20%.
The data shows that banks were lending 26.5% high-LVR in August and 25.5% high-LVR in September. It had been 30% earlier in the year but dropped to 11.7%, after exemptions, when the rules were introduced.
It’s still above the cap but that is likely due to preapprovals that had to work through the system. Lending will be measured over a six-month period initially.
Westpac senior economist Michael Gordon said the drop in high-LVR lending was being countered by more lending to those with more equity.
“This is important as it suggests that the LVR limits have led to a shift in the composition of home buyers, ameliorating the overall impact on the housing market. We predicted that the nature of the speed limits would lead to a bifurcated market, where lenders would not only try to ration demand for high-LVR loans, but would push to grow their low-LVR lending, so that they could make more high-LVR loans within the 10% speed limit.”
He said lower mortgage rates, and reduced first-home buyer competition would create favourable conditions for investors.
The value of loans issued in October was up on the same time the year before.
Auckland Property Investors Association president David Whitburn agreed that was what had happened.
“More investors have come out of the woodwork and picked up the slack from first-home buyers in the Auckland market.”
He said many investors were coming from overseas with significant deposits and were untroubled by the rules.
Deputy Governor Grant Spencer said the October result showed that banks were adjusting to the new policy and were well placed to meet the speed limit.
“The reduction in high-LVR lending will help to reduce the risks of a sharp correction in house prices in an already overvalued housing market. Such a correction could be damaging for the financial sector and broader economy,” he said. “The banks are having to manage a pipeline of loans that were pre-approved prior to the LVR restrictions taking effect. The share of high-LVR lending is expected to fall further over the coming months as these pre-approvals run down."
He said it was too soon to say what effect the change was having on housing market activity and credit growth.
| 1 | 2 | 3 | 4 | 5 | 6 | |
| Total new commitments | LVR 80% or less | LVR above 80% | Exempt | High LVR share before exemptions | High LVR share after exemptions | |
| Aug | $4,298m | $3,160m | $1,137 mill | na | 26.5% | na |
| Sept | $4,705 mill | $3,507 mill | $1,198 mill | na | 25.5% | na |
| Oct | $4,470 mill | $3,899 mill | $571 mill | $53 mill | 12.8% | 11.7% |
Notes to table
The first three columns of the table show banks’ mortgage commitments, which are finalised offers to customers to provide mortgage loans or to increase the loan value of an existing mortgage loan, as evidenced by the loan documents provided to the borrower.
The high LVR share (after exemptions) is calculated by excluding exemptions from LVRs above 80 percent (column 3 minus column 4) and dividing by total new commitments less exemptions (column 1 minus column 4).
| « Kiwibank already near target before rules kicked in | RESIMAC takes full control of home loan book » |
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Comments from our readers
We are the only country in the Asia-Pacfic region (aside from Japan and South Korea) that doesn't limit or restrict non-resident purchasers from buying residential housing.
When is the Reserve Bank and the Government finally going to wake up to what is happening in Auckland?
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