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.