BNZ removes high rates for low equity loans

[UPDATED LEP rates] BNZ has removed its two-tied pricing structure for home loans, saying that it was confusing customers.

Tuesday, March 11th 2014, 6:00AM

It introduced, in August, a new set of rates for its Fly Buys and Global Plus loans where the borrower had a deposit of 20% or less. These rates were priced 50 basis points above its standard rates.

BNZ director of retail, Andy Symons, says the second tier was increased after the Reserve Bank’s “speed bump” lending restrictions came into force in October.

It was introduced because of increasing costs around this sort of lending and the cost of capital.

However yesterday it withdrew these rates and has chosen instead to use low equity premiums (LEP) for low equity loans.

BNZ says a low equity interest rate premium applies to all new or existing lending with and LVR of more then 80%.

Its low equity premium are:

with LVRs between 80% and 85% it is 0.35%
with LVR between 85.01% and 90% it is 0.75%
for loans with an LVR between 90.1% and 95% it is 1%
and for loans with LVRs above 95% the LEP is 1.15%.

The latest Reserve Bank figures show overall that banks are making about 5% of their loans in the low equity space. Symons says BNZ’s volume of loans is above 5% and “comfortably” within the Reserve Bank’s rules which restrict low equity loans to 10% of the bank’s total lending.

He says BNZ is still keen to write low equity loans and is focused on serviceability.

“We are open for business and able to support (low equity lending),” he says.

A bank spokeswoman said: "The two-tier structure was implemented in response to the RBNZ capital requirements for low equity lending. Since then we have modified our processes and feel that they are successfully managing the flow of low equity lending. Thus the additional tier is no longer necessary."

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