sign up log in
Want to go ad-free? Find out how, here.

ASB high LVR residential mortgage lending down almost a quarter since introduction of RBNZ restrictions

Business
ASB high LVR residential mortgage lending down almost a quarter since introduction of RBNZ restrictions

ASB, the major bank that made the most aggressive use of high loan-to-value ratio (LVR) home loans in the months prior to the imposition of Reserve Bank restrictions on such lending, has, in the two years since the restrictions were imposed, reduced high LVR lending by almost a quarter.

Figures from ASB's latest General Disclosure Statement show that, as of September 30 this year, the bank had $7.356 billion worth of residential mortgages with LVRs of between 80.1% and 100%. That's down $2.236 billion, or 23.3%, from $9.592 billion two years earlier when the Reserve Bank restrictions kicked in.

Over the same time period ASB's home loan book has grown a net $3.72 billion, or 9.1%, to almost $44.6 billion.

Since October 2013 banks haven't been allowed to do more than 10% of their mortgage lending to borrowers with deposits or equity equivalent to at least 20% of the house price. Prior to the introduction of these rules, ASB was growing high LVR lending at a faster pace than its major rivals. In the 2012 December quarter 95% of ASB's net mortgage growth stemmed from high LVR lending.

'Discrimination between borrowers will grow'

Criticised in some quarters for making it harder for first home buyers to gear up and get on the property ladder, high LVR restrictions have derisked bank loan portfolios, putting banks in a better position to cope should house prices fall.

And as BNZ chief economist Tony Alexander noted in his weekly overview last week, the LVR restrictions are changing market dynamics for borrowers.

"Your challenge as a borrower going forward is shifting from managing your interest rate risk to getting the credit you want when you want it. So my question to you is this; How much effort are you putting into your relationship with your bank? At the moment we are trying our best to lend as much as possible to you. But in coming years our discrimination between borrowers will grow. Get ready," Alexander wrote.

From this month the Reserve Bank has introduced new LVR restrictions meaning residential property investors in the Auckland Council region will generally need a 30% deposit for a mortgage loan secured against Auckland rental property. 

At the same time, however, it has eased the original LVR restrictions outside Auckland meaning banks can make up to 15% of their new mortgage lending to borrowers with LVRs exceeding 80%, regardless of whether the borrowers are owner-occupiers or residential property investors.

*This is an abridged version of an article that was published in our email for paying subscribers early on Monday morning. See here for more details and how to subscribe.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

6 Comments

At the moment we are trying our best to lend as much as possible to you. But in coming years our discrimination between borrowers will grow. Get ready," Alexander wrote.

Under which rock has this bloke been hiding, or is he just being economical with the truth for the readers benefit?

It was just another step in the centuries long march of banks from lending only their owners’ capital to merchants on the security of nothing more than promissory notes to being highly geared (effectively lending $60 for every $1 of capital), highly profitable lenders of others people’s money against real estate. Read more

Up
0

And this:

So my question to you is this; How much effort are you putting into your relationship with your bank?

Will flowers and chocolates do?

Up
0

That really was a bizarre and weirdly passive-aggressive sentence. "I've been trying to lend you as much as possible, but this relationship has to be a two-way thing. Can we talk about it on date night? I'll give you a massage and then we need to discuss your term deposits. I'll stop sending you interest statements, and then you'll be sorry. And I'm pregnant to your brother."

Up
0

I think he's being entirely transparent. The banking industry has the nation by the balls. (Comment edited. Please leave personal insults out, there's no place for them on interest.co.nz. Ed). It's a shame to see him as the town cryer for the industry's executive power, but that's the new age we live in.

Up
0

I didn't realise Basil 3 had changed banking as much as it has. Having everything invested in houses means the banks have a far less diverse income stream. If we have a financial disaster in NZ that does wipe out 30% equity banks will struggle to change so that they meet the regulatory requirements. I can't remember the Tier structure exactly but Tier 1b capital would be used to improve bank liquidity but do they have enough reserves to cope with this scenario?

With 28% of our economy being the financial sector I would expect that productive loans would be better for the economy. I expect that banks will just keep pumping money into housing to increase prices, equity and their lending with no limit in sight. Kind of looks like a positive feedback loop that you would see with a financial bubble forming.

Up
0

Did he just say "going forward".......
Why do people speak like this? The online Urban Dictionary offers two possible explanations: the first defines "going forward" as "a phrase that business people use to mean someone completely fd up big time but we don't want to dwell on whose fault it was; instead can we all just adopt an optimistic outlook and please can we all start thinking about the future, not the *&ithole of a present that we're in?"

Up
0