By Gareth Vaughan
"You're closer to home than you think," the billboard soaring high above Auckland's bustling Karangahape Road says.
"From as little as 5% deposit."
The billboard is an advertisement for Westpac home loans. But although Westpac is promoting home loans with loan to value ratios (LVRs) of up to 95% more openly than the other banks, it's not currently the big mover in this market.
Based on the major banks latest General Disclosure Statements (GDS), ASB has that title. Although several of the banks wouldn't write LVRs above 80% at the height of the global financial crisis, they certainly have been over the past year or so.
As of September 30 ASB had NZ$3.4 billion worth of home loans at LVRs above 90%, 8.1% of its total residential mortgages. That's up from NZ$1.6 billion, or 3.8% of its lending, a year earlier.
Mike Davy, ASB's general manager for lending, said home loan customers with as little as 5-10% deposit were often first home buyers looking to get an entry into the property market.
"This higher LVR lending still forms the minority of our business, particularly where customers have less than 10% deposit," said Davy. "Normal lending criteria apply, including the ability of the customer to afford repayments, and customers will typically pay a low equity fee."
Westpac's latest GDS shows it had NZ$3.3 billion, or 8%, of its home loans at LVRs above 90%. That's up NZ$400 million year-on-year, but as a percentage of its residential mortgage book is down from 8.4%.
A Westpac spokeswoman said the bank had "remained open for business" in recent times, including lending greater than 80%.
"As always, every decision is based on individual criteria including customer experience and affordability," the Westpac spokeswoman said.
BNZ has also recorded solid growth in the the highest LVR bracket. Its GDS shows NZ$2.2 billion worth of home loans with LVRs above 90% at September 30, 7.3% of its total. That's up from NZ$1.5 billion, or 5.3%, a year earlier.
Fall at Kiwibank, ANZ stable
Across the same time period Kiwibank's above 90% LVR home loans dropped in value to NZ$465.4 million, from NZ$622.9 million, out of its total NZ$10.95 billion residential mortgage book. And ANZ New Zealand, including both the ANZ and National banks, held its mortgages with LVRs above 90% steady at NZ$4.9 billion.
Kerri Thompson, ANZ's managing director for retail, said "more stringent credit assessment criteria" applies to loans with LVRs over 80%, with lending over 90% on a "case-by-case basis" with the customer’s ability to service a loan the main criteria in each case.
"It is against our and many other banks’ policies to lend to customers where the repayments would be beyond their means," Thompson said. "It is important that we lend responsibly and this is enshrined in our customer charters. It’s in everyone’s interests that customers are financially well off."
Aside from its billboards, Westpac is also promoting up to 95% mortgages on its website which notes you can "borrow up to 95% of the house value in most urban areas".
However, Annette Kann, an Albany-based Roost mortgage broker, said Westpac - unlike the other major banks - doesn't consider KiwiSaver subsidies as genuine savings for first home buyers. This subsidy amounts to NZ$3,000 for people who've been in a KiwiSaver scheme for three years and means when it's excluded, it's harder for the borrower to raise a minimum 5% deposit. This means it can be harder for a potential customer to reach the 5% deposit threshold with Westpac than with other banks.
"There's also a big difference between the banks in terms of the low equity premiums are being charged versus loading fees etc," Kann said. "Westpac loads rates, ASB charges fees but then these can be negotiated in both cases as well."
Rise in high LVR mortgages comes in low growth market
The NZ$2.9 billion annual rise in residential mortgages held by the big five banks with LVRs above 90% to NZ$14.2 billion at September 30 from NZ$11.3 billion a year earlier comes against a backdrop of weak overall growth in home loans.
Reserve Bank sector credit data shows housing debt up 1.2% in calendar year 2011 to NZ$172.985 billion. That 1.2% growth compares with year-on-year growth rates above 14% during 2007 and four consecutive months - April to July - in 2004 when it was above 17%, which marks the high point since the central bank started compiling the data in 1998.
The rise in high LVR lending also comes with state-owned property valuer Quotable Value saying New Zealand residential property values rose 2.4% in 2011 meaning they're now 3.5% below the previous market peak of late 2007. Values in Auckland rose 4.3% during 2011 ending the year at their highest level ever, 1.4% above the previous late 2007 peak.
However, there have been recent signs of life in the housing market. The Reserve Bank's weekly home loan approval figures topped NZ$1 billion in value for three weeks running in December for the first time since December 2007.
John Bolton, principal and advisor at Auckland-based mortgage broker Squirrel, said bank risk appetite for higher LVR loans had clearly improved since 2009-2010. Bolton said, however, the banks are being more conservative with their borrowers than they used to be, seeking job stability, good debt servicing ability, good incomes, a genuine saved deposit of at least 5%, and people who don't have much other debt.
'Anyone with a pulse'
Bolton said the higher LVR lending on offer wasn't the same as that on offer in the period up to 2007, which included 100% mortgages.
"I still think they're reasonably conservative (now), even at those higher LVRs. What I mean is if you went back to pre-financial crisis banks were lending 95-100% to anyone with a pulse," Bolton said.
Today he said most of Squirrel's clients have deposits of near 10% and no other significant debts.
"One of the big differences between now and three-four years ago is most of the people approaching us don't have car loans, don't have credit card debt. There has definitely been a bit of a shift, - people realise they do need to save deposits. KiwiSaver's a pretty decent chunk of what's helping people."
The typical couple clients have combined annual income of about NZ$160,000 and want to buy a house in the NZ$500,000 to NZ$600,000 range, equivalent to about four times their income, said Bolton.
More caution with apartment lending
Despite the banks being prepared to lend up to 95% for home loans, apartment lending remains "quite tight." Bolton said to secure a loan for an apartment purchase in Auckland the borrower generally needs at least a 20% deposit. For non-standard apartments, those of less than 50 square metres, banks will only lend 50% of the purchase price, Bolton said suggesting they remain "spooked" after leaky homes woes and losses on loans to overseas apartment buyers.
State owned Kiwibank, meanwhile, has offered up to 95% LVR lending, and sometimes higher under the Government’s Welcome Home Loan scheme right through the global financial crisis. All Kiwibank's loans exceeding 80% LVR are insured or covered by a Government guarantee through the Welcome Home Loan scheme, a spokesman said. Kiwibank's website notes 95% home loans are available to first home buyers.
"Kiwibank considers loan applications on a case by case basis. Property valuation is important, but perhaps more important is the applicant’s ability to service the loan without putting themselves into financial hardship," the spokesman said. "In recent years we have seen customers choosing to repay their debt as much as possible and choosing options such as revolving floating loans that allow additional repayments at any time and offset products where funds held in transaction account by the customer and associated family members can be used to reduce the level of loan capital incurring interest charges."
He noted an increase in new home buyers in recent months and said Kiwibank had benefited from recent home loan special rate promotions - on the likes of six month and four year fixed-term loans - without providing specific details.
"We (Kiwibank) try and help customers into property ownership through initiatives such as offering first home buyers at the moment a NZ$500 payment toward their legal and other home purchase costs."
ANZ, meanwhile, is offering customers borrowing more than NZ$100,000 - that's approved before March 31 - NZ$1,000 "cash-back," plus contributions towards legal costs and valuations.
'Low to moderate growth' seen
Looking ahead Davy said ASB was picking "low-to-moderate growth" in the home lending market over the medium term.
"ASB is expecting to be very competitive in the housing market with a strong service proposition and quick turn-around on application assessment, which customers love," Davy added.
The Kiwibank spokesman suggested international financial uncertainty would continue to influence the New Zealand market with property owners seeking to reduce debts. He said a significant proportion of the bank’s loan book would remain on floating - variable and revolving - rates. Across the industry the percentage of home loan borrowers with their mortgage on a floating interest rate recently rose above 60% for the first time since the Reserve Bank records began in June 1998.
On top of the NZ$103.761 billion, or 61%, of banks' on-balance sheet residential mortgages floating, another NZ$40.232 billion is fixed for a term of less than a year, meaning NZ$143.993 billion, or 84%, worth of on-balance sheet residential mortgages are either floating or up for renewal during 2012. Banks hold just NZ$281 million worth of mortgages off balance sheet, the Reserve Bank says.
Meanwhile, home loans with LVRs of between 80% and 90% have also been on the rise. At ASB they rose to NZ$4.2 billion from NZ$4 billion at September 30 year-on-year. ANZ's increased NZ$1 billion to NZ$7 billion, Westpac's to NZ$5.7 billion from NZ$4.9 billion , Kiwibank to NZ$1.6 billion from NZ$1.4 billion, and BNZ's to NZ$1.8 billion from NZ$1.5 billion.
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