The country's largest lender ANZ is taking another 'pause' on mortgage lending to those with deposits of under 20%
The bank had only reinstated under 20% loans in February after being among a group of the big banks taking time out from low deposit lending last November.
An ANZ spokesperson, in confirming the 'pause' noted the 10% Reserve Bank cap on lending banks can do to customers with less than 20% deposit.
"To comply with these tightened restrictions, ANZ is pausing new home loan applications where the loan to value ratio (LVR) is greater than 80%. Customers with existing approvals are unaffected until the expiry date, at which point we’ll need to apply the updated policy."
She said ANZ "remains open" for all other home lending, including lower deposit loans for new builds.
Asked how long the 'pause' might last for, the spokesperson said: "The steps we’re taking are a temporary measure and as soon as we are able we will commence providing approvals for low deposit lending again."
The latest move by the country's biggest bank comes amid ever rising mortgage rates, with all major bank rates for longer than a year over 5%, while at the same time house prices are sliding.
67 Comments
If you bought badly and only your house goes down by 20%, you're in trouble. If you bought averagely and other houses go down by the same rate, the new house you want to move to, will of course also be cheaper. If you bought well and your house keeps its value while the others drop, you're looking great.
Not me, the RBNZ.
https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/regulation-an…
Point 19. Whoops, make that 14.
And David Chaston, are your web programmers actively trying to make this website user unfriendly? Why is pasting into comments a complete PITA both on mobile and on desktop in chrome. "Press Ctrl+V to paste. Your browser doesn‘t support pasting with the toolbar button or context menu option." It bloody well does on every other website I use.. the problem isn't the browser.
Because they are taking on an increased risk and capital costs ... all that happens is that it doesnt count towards the speed limit (breaching that means losing banking license). The risk weighting and capital will be higher.
let's say you borrowed $800m for a $1m property last year, then sold and shifted to a similar house that is now worth $800k -- so you sell yours for $800k and buy in the same market for $800k... I very much doubt that the bank is going to let you have a 100% loan in that scenario.
Neither does a 90% investor new build loan, but banks arent doing those either.
There is no increase in risk, or capital costs to the bank, the house you sold and the house you buy are worth the same in your scenario. The only thing that has changed is the title the security is registered against. Same loan, different security. I doubt RWA would change, again, no increase in lending, no new origination, same loan, different security.
No, you're not right.
The loan is secured against the property. So obviously a different security changes the risk profile and RWA. Under your argument, the loan could stay the same even if secured against a property worth half the original value - let's say they shifted to an apartment. The bank would absolutely require a reduction in borrowing.
The risk weighting will 100% be based on the borrowing divided by the new security. Moving houses is a credit event. The RBNZ is only saying they will exempt it from the speed limit. Not the same thing as a bank deciding to lend, and at what price.
Not sure where you're getting your ideas from?
<blockquote>Under your argument, the loan could stay the same even if secured against a property worth half the original value</blockquote>
I said no such thing. The bank wouldn't want a lesser valued security, it would have to be the worth the same or more.
From reading the RBNZ documents, like the one I linked above, and BS19, and all the reading into the regulatory framework (BASEL 1,2 &3) I did a while ago.
Where did you get yours?
But it is not worth the same mate. The original security, at origination (which is what matters for capital and risk weightings) was $1m, and the new one isnt. There isnt a bank that would agree to a 100% LVR loan in that scenario. They would absolutely need a pay down, regardless of RBNZ speed limits.
This is new loans only - the RBNZ speed limits do not apply to back book, nor does LVR get reassessed as markets change, it's at the point they originated. However, ANZ does also report on what it calls 'dynamic LVR' in it's market disclosures, so who knows how that might change.
Correct, this has nothing to do with RBNZ rules. ANZ publicly said they had room within RBNZ caps a while back but put onerous terms (like requiring massive amounts of spare income to service the debt). Yet they are now removing low equity loans even from people who can easily service.
Banks see a high chance that 20% equity disappearing as prices fall, so are pulling back on lending.
anyone who thinks the tweaks to CCCFA rules will see the market pick back up, are in for a rude awakening.
100%. They're constantly having to monitor the levels to remain below 10%. With less under 80% lending on the books there's not enough to offset the current over 80%. If must be quite bad this time as it's blanket no over 80 unless there is an exemption (previously could do approvals for existing customers or topups).
These pauses will continuously come and go and not in sync with other banks.
Exactly, they want to keep a healthy chunk of your equity (to lose first) between what they lent you and any possible fall in valuation.
In particular in a distressed mortgagee sale in a falling market, which they have to take to auction to show it is a hands-free open-to-the-market sale, then these types of sales can get up to 15% less than if they had been sold with a bit more and longer effort by other sales means.
One part I am unable to agree is the statement that "interest rates will keep going up".
That can only be true if prices continue to rise year on year and therefore reflected in the CPI.
With contraction of credit looming, slowing home sales and oil prices topping for this year, this time next year should see inflation tick down and therefore result in slash of the OCR .. at least that is what has happened?
I am also surprised by the lack of movement in asking prices .. they have dropped but not by much.
Any thoughts?
They do, here are ANZ latest forecasts and RBNZ forecasts from the latest MPC.
https://www.anz.co.nz/about-us/economic-markets-research/economic-outlo…
https://www.rbnz.govt.nz/hub/news/2022/05/monetary-conditions-tighten-b…
Thanks for those links.
Reading the ANZ outlook, an excert from that is an interesting read:
We expect OCR hikes, supported by the general
monetary tightening underway globally, will
successfully take the heat out of inflation in time
(figure 6). Tradable inflation will slow alongside
global developments (there’s already evidence of
weakening orders for Chinese manufactured goods,
which should see shipping costs soon start to fall).
But it’ll take a loosening in the labour market and a
housing slowdown to tackle non-tradable (domestic)
inflation – that’s a longer-term project. .......Previously, we had the
OCR gradually “normalising” from early 2024, but we
have pushed this out to the second half of 2024.
That is their target .. so not much long.
Unless we see significant job losses, I am not seeing major drop in prices.
Any thoughts ...
I think inflation will be elevated for years (3+), and that while interest rates will rise, they won't rise significantly enough to get it under control. I think this will be by design, as there is just too much debt out there to sustain the kind of interest rates needed to get it under control. Thus, the fabled "soft landing" will be higher inflation for everybody to avoid a complete meltdown. New Zealand will be forced to lift interest rates alongside our trading partners in order to defend our exchange rate, but it won't get to the levels of financial apocalypse that some are hoping for.
after the current crunch and reset of prices has passed through, and once lending frees up as part of The next credit cycle.
Could take years.
Then it's prices to the moon baby!
If your a potential FHB right now and are able to keep saving... What's the harm in saving and holding TDs at present? The retreat in housing and equities is faster than inflation.
All our big banks are essentially mortgage banks. With 70% of their books in residential property there is a big risk to that particular market. If the market gets to minus 30% from peak, then we could have the situation where the banks themselves are scrambling, although I do note the RB stress test says otherwise. At minus 30% plus everyone on all sides of a mortgage is on the line. Just a little bit of bad luck at that moment and....
Even +30 from peak is not a major for our banks.
Only a small % of overall mortgage holders took on max loans over the past 2 years.
Prices are coming down and it's not going to be all that spectacular.
What's a 50% drop if you've only got 6 years left to pay your mortgage off?
Yes. Individual circumstances will vary. But in terms of the banks wider portfolio and therefore risk position, relatively few customers are exposed to a degree that it causes structural concern to the bank as a whole.
There is no Risk of our banks collapsing. Its not the same situation as 2007.
The problem wont be house prices directly but will be the reverse of the 'wealth effect' that kept people spending during the pandemic. Now people will 'feel' poorer beacause their asset values are dropping and we at the same time inflation is making our income worth less, wages rises are static and we are all saving in anticipation of bad times ahead. So a perfect storm of ways to stop spending.
Whilst this will eventually bring inflation under control.. in the meantime consumer and business spending will bomb so businesses will start to cut costs... houses for sale will pile up and value will drop further if it happens too fast we are in trouble and the banks go with us.
Rbnz needs to get on top of it asap.
Yip…. Another nail in the coffin.No more highly paid but low deposit youngsters to pay over the odds.
What do landlords do…. keep renting out the house and topping up the mortgage by larger amounts…. Or give 90 days notice to vacate and then try to sell? But that could take two, four, six months with no rent…. Yikes
And wait until people start to lose their jobs…and it’s not just the inconvenience and cost of seeing through a few tough months…but the small portfolio they have been supporting now can’t be topped up and it’s a whole house of cards.
this might( and I think it will) all get very unpleasant very quickly
The people who thought this was all a good idea should all be taken out and flogged
The overleveraged or recent borrowers, lenders, government all took the risk and they will all lose out now that it is collapsing.
I am not sure i have much sympathy for any to be honest. Plenty of people decided to forgo greed and lived relatively frugally and saved carefully (balanced and cqrefully managed investments rather than jumping on the investment property bandwagon) whilst asset prices boomed.. and are now sitting safely. And those who couldnt afford to take part will start to see a world where they have better and real options to get ahead.
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.