BNZ to reinstate LVR restrictions on home lending from December 7

Banking

BNZ says it will reintroduce loan-to-value ratio restrictions on low deposit home loans from December 7 as Reserve Bank moves to formally restore them

24th Nov 20, 4:23pm by Gareth Vaughan

BNZ says it will reinstate the Reserve Bank's home lending loan-to-value ratio (LVR) restrictions that were in place pre-Covid-19, joining the other big banks in pre-empting their regulator's move.

"This means that from the 7th of December, BNZ will require a minimum 30% deposit from residential property investors," BNZ says.

The Reserve Bark removed the LVR restrictions, which had been in place in various guises since 2013, in April. During the period since April BNZ used its own LVR criteria for lending to owner-occupiers and residential investors, taking "a prudent and careful approach to lending, irrespective of LVR settings."

Earlier this month the Reserve Bank announced plans to reintroduce LVR restrictions next March due to a red hot housing market where it's observing "rapid growth in higher-risk investor lending."

“Given the importance of ensuring home ownership remains within reach for New Zealanders and that residential property prices remain sustainable, we believe the right thing to do is to move back to our pre-COVID-19 loan-to-value settings,” Dan Huggins, BNZ's executive for customers, products and services, says.

Westpac didn't loosen LVR restrictions when the Reserve Bank removed them, thus the bank's settings remain in line with the LVR restrictions in place until April this year. ASB announced on November 12 it was immediately restoring LVR restrictions. And property investors will need 30% equity for a home loan from ANZ from December 7, up from 20% now. Owner-occupiers currently borrowing from ANZ need a deposit of at least 10%.

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17 Comments

by printer8 | 24th Nov 20, 4:35pm 1606188933

Lets not get carried away and say how good BNZ and the other banks are in introducing self-imposed LVRs.
It is their interest two-fold:
- Firstly they can with a strong case difficult to negotiate against, to charge additional low equity premiums to standard rates, and
- Secondly, they are protecting their butt against potential severe price correction exposing risk of low equity loans.
Much as I support the integrity of the NZ banks, the reality is that their self-interest is naturally most important to them.

by RichMuhlach | 24th Nov 20, 5:11pm 1606191085

So are you saying that BNZ is expecting a severe price correction soon? Otherwise there would be no need for them to reinstate LVRs.

by printer8 | 24th Nov 20, 5:27pm 1606192025

RM
I am not saying that at all and for you suggest so is inconsistent with my comment.
What I am saying that there is potential risk (note use of "potential" and "risk") for a correction if house prices continue to increase at the same rate as the past few months. Corrections are always a possibility - especially due to unforeseen events - and current rates of increase are not sustainable and simply increase the risk of a severe correction. Your comment that I am suggesting that "BNZ is expecting a severe price correction" is baseless.
That is called being prudent or risk aversion and NZ banks are both very prudent and risk aversion (note banks' 5 to 6% stress test placed on borrowers).
Being prudent also applies to borrowers so this is why I regularly comment that FHB especially should pay down their principal as quickly and as much as possible.
This is all pretty basic really.

by karl seastrand | 24th Nov 20, 5:49pm 1606193372

printer8... surely there is always potential risk for a correction in house prices. I would be more inclined to say that there is now a much much higher potential risk of a serious correction in the next few years than there has been in the last 200 years.

by b21 | 24th Nov 20, 5:12pm 1606191174

Exactly, the only reason why they are doing this is because otherwise they are force to a race to the bottom, which will cause them more issues down the road. The only problem they will have is that until the RB forces all banks to do this customers will flock to those banks more willing to take the risks.

by Pusheen | 24th Nov 20, 11:39pm 1606214384

Very rare that Banks pre-empt the CB moves don't you think? usually they always become the follower and most here in interest.co.nz mentioned them as being prudent in lending. Which makes you think as per your suggestion that their self-interest is at best, then they are suddenly being prudent?.. previously, are they less prudent? or .. may be not at all (greed). Whichever it is, I hope the RBNZ move forward their FLPs and relaxing it into, housing lending rather than strictly for business, then move quickly to this neg. OCR, as somehow.. there's a myriad of voices lurking around to introduce back LVR, the FLPs for housing, negative OCR & Govt turn to remove bright line test are the next key here in Q1 2021, to maintain the momentum of good growth, take away LVR.. do something else, more housing supply by JA? rest assure the 'RBNZ team' can do more of that QEs/LSAP - they're expert and so does our OZ Banking for sure. So what all these fuss all about.

by Kate | 24th Nov 20, 6:54pm 1606197272

These LVRs for property investors won't make one heck of a lot of difference - given every existing property owner likely gained that 30% in market valuation over the last 3 year period on a single house. So, there's the deposit, and all they need to do is come up with a rental price that covers the balance of the purchase price (the new mortgage).

As I've said before - only rental price controls will stop investors in their tracks. And that has to come from a central government mandate.

by karl seastrand | 24th Nov 20, 9:32pm 1606206738

Kate...yes we could have a five or ten year price freeze on rents (if only the Govt had some guts and foresight). I remember the old price freeze in 1982. My Dad tried to increase my board from $20 to $30 and I refused to pay informing him he would be breaking the law. True story. LOL.

by Kate | 24th Nov 20, 10:40pm 1606210816

I wasn't thinking of a price freeze, but rather a rental price maxima, a possible formula being:

(RV/1000)+10% = Weekly rent maxima

Rent maxima on this would be $522/wk - not the $610/wk they are asking;
https://www.trademe.co.nz/a/property/residential/rent/wellington/lower-…

Rent maxima on this would be $242/wk - not the $390/wk they are asking;
https://www.trademe.co.nz/a/property/residential/rent/wellington/lower-…

Rent maxima on this would be $583/wk - not the $650/wk they are asking;
https://www.trademe.co.nz/a/property/residential/rent/wellington/lower-…

I haven't checked it out in other regions, possibly the formula for the maxima should be just RV/1000, given many RVs are already over-inflated/over valued. But some formula that takes the heat out of rental returns on lower quartile properties to investors is what is needed.

Once you get into the higher RVs, the formula produces a maxima which appears higher than what is actually asked for. So, it seems the formula provides rent price relief at the lower end of the market - which is, in the main, the FHB market.

by SmoKey | 24th Nov 20, 9:52pm 1606207923

What if they introduce a differential interest rate policy for FHBs and Landlords. A higher interest for Landlords, say 3/4 % higher, which would go to subsidise a lower rate for FHBs ? That would discourage a bubble.

by Pusheen | 24th Nov 20, 11:49pm 1606214962

Kate, albeit a nice word to introduce.. some sort of 'control' in NZ F.I.R.E economy the control lever is soo much distorted already, all towards specific cult of society. So, it won't work! - Let it be, then we can observe from sidelines as what going to happen.
Not much differ to other industries that control has been introduced into: gambling, tobacco, alcohol. On each of those, you'll see how staunch the industry defense eg. alcohol, reduce age, increase hours, more tax profit.. we're mature not nanny state etc. Same with housing, the argument is as just the same, we need/don't need: LVR, DTI, Bright Line test, Land tax, CGT, Rental freeze, Banks are prudent lender etc. Y R..

by Kate | 25th Nov 20, 1:00pm 1606262414

I could observe from the sidelines, but that does nothing toward my ambition for a just society.

I've observed from the sidelines in terms of what is/has happened in the US. Had a close girlfriend from uni days commit suicide about 2 years after she lost her home in the GFC as a result of losing her job. Her equity in the home was around 70% but when sold under mortgagee sale (to a bank), she came out with only a few thousand. Couch surfing and hundreds of job applications later, life just got too much for her. She headed to a motel when down to her last few dollars and never left it.

Her story could be repeated tens of thousands of times. It isn't what I want for NZ.

by Theoracle | 25th Nov 20, 9:26am 1606249575

Debt to income lending will kill it and that's the next cab off the rank.

My money's on them introducing DTI by March 2021.

Until then... a feeding frenzy.

by Kate | 25th Nov 20, 1:02pm 1606262552

How does DTI apply to a rental investment?

by Sibrit | 25th Nov 20, 1:15pm 1606263320

Well. BNZ were happy to give me a mortgage this month with just 15% deposit. Shame I won't be able to buy a house before it expires in February. I've been losing out even where I'm putting in $100000 over RV. Too many investors and FHB's looking to take advantage of the very low interest rates.

by Kate | 25th Nov 20, 2:06pm 1606266361

If the RV is about to be reviewed (they are updated every three years) it is understandable that they may be way behind market prices.

The best tool to use is this one;
www.homes.co.nz

As it tells you a history of previous sales for the property, also recent sales prices in the neighbourhood, as well as the current RV and what year it was last reviewed. It also provides an estimate of market price.

As a general rule, many properties sell around that estimate - so using that website is a good way to check whether or not what you want to offer will or won't be in the ballpark.

Good luck - good to be cautious in this volatile marketplace. Even the Reserve Bank Governor is talking about a possible 'harsh correction'.

by fortunr | 28th Nov 20, 12:32pm 1606519931

Isn't it funny that the individual commercial banks are demonstrating more caution and sense of responsibility than the very organization supposed to supervise them (the RBNZ)?
Yes the banks are doing it for their own reasons - but the incompetence of the RBZN is eye-watering.