Kiwibank chases borrowers with floating rate special

The bank chief executive quoted in this article perhaps needs a refresher on his own bank’s construction loan policy. None of the main banks (including his own) will look to lend any more than 80% on a build for a good client. Maybe they will sometimes go up to 85% for a very good client with an established bigger building company. Maybe. This has been common established lending practice by the banks here well before these Reserve Bank restrictions came in to force on 1st Oct. Offering a cheap floating rate while building isn’t going to matter if the bank won’t even approve the loan for the customer in the first place.

Because of the inevitable cost overruns that accompany building a home nowadays in New Zealand banks won't be likely to approve borrowers a home loan above 80%. Why? Experience has taught them that people frequently have unanticipated landscaping or engineering costs etc. to fund. If they are maxed out already at an 80% approval to fund the expected project cost then their bank won’t want to be the bad guy at the end of the project telling no to any more money. If people haven't got a full 20% deposit going into a build then they shouldn't even be contemplating building a home frankly.

The only lender/bank that will benefit potentially from this U-turn by the Reserve Bank on construction loans been exempt from its lending restrictions will be Sovereign and their New Build product. This product allows borrowers to go above 80% regularly. And if people want to borrow above 80% then they can expect to pay for it now at their bank with the increased capital holding requirements introduced 1st Oct separate to the Reserve Banks loan to value restrictions.