By Gareth Vaughan
ASB, which over the past two quarters has recorded 84% of its home loan growth through loans where the borrower has a deposit of less than 20%, or equity in their home of below 20%, says a key factor in this has been buyers tapping their KiwiSaver money for a deposit for a first home.
Ian Park, ASB's executive general manager of retail & business banking, told interest.co.nz via a spokesman that the overall proportion of high loan-to-value ratio (LVR) lending across the bank's residential mortgage portfolio, at 22% of the total, was a "satisfactory" level. He noted that it was lower than some other banks. Both ANZ and Westpac are at about 24%, Kiwibank at 19% and BNZ just under 15%. See story here.
"We continue to review the make-up of our total lending portfolio on a regular basis. The overall proportion of higher LVR lending across our portfolio remains at a satisfactory level," Park said.
ASB's latest General Disclosure Statement shows it grew housing loans by NZ$791 million, or about 2%, during the three months to March 31. Of that growth NZ$565 million, or 71%, stemmed from loans where the borrower has less than 20% equity. That came after ASB recorded NZ$882 million, or 95%, of its NZ$932 million December quarter growth through high LVR loans. Over the two quarters, combined, ASB grew residential mortgages by NZ$1.7 billion with NZ$1.4 billion, or 84%, coming in lending where the borrower has deposit/equity worth less than 20% of the loan.
The bank now has a total of NZ$8.737 billion, or 22%, of its residential mortgage book at LVRs above 80%. Some 7.5% is at LVRs above 90% and 14.6% at LVRs between 80.1% and 90%.
The Reserve Bank recently moved to make the big four banks hold an average of 12% more capital against their housing loans to cover any potential losses from high LVR lending, which adds up to about NZ$500 million between them, or the equivalent of NZ$125 million each. The central bank and prudential regulator said about 30% of all new residential mortgage lending was at LVRs over 80%, up from about 25% in late 2011 and early 2012.
Using KiwiSaver for first homes
The increase in high LVR lending remained "well within" ASB's pre-determined lending criteria, Park said.
"This increase has been encouraged partly by home buyers accessing their KiwiSaver savings to put towards the purchase of a first home."
Savers can withdraw some or all of their KiwiSaver money, except for the NZ$1,000 kick-start and member tax credit, to put towards buying their first home. To do this they must have been a KiwiSaver member for at least three years and can only withdraw money to buy a first home, not an investment property. However, in some circumstances people who have owned a home before, might be eligible to withdraw their savings. See more here.
And after three years of contributing to KiwiSaver, savers might be entitled to a first home deposit subsidy. The subsidy is administered by Housing New Zealand. The first home deposit subsidy is NZ$1,000 for each year someone has been contributing to KiwiSaver, up to a maximum of NZ$5,000 for five years. A couple buying a house together who both qualify for a subsidy could receive a combined subsidy of up to NZ$10,000. To be eligible for the first home deposit subsidy, savers must: have contributed at least 2% of their income to a KiwiSaver scheme, or a complying superannuation scheme, for at least three years, be buying their first home, and be planning to live in the house for at least six months.
Non-first home buyers can also be eligible for the first home deposit subsidy. Housing New Zealand will judge whether applicants are in the same financial position as a first home buyer.
Lenders mortgage insurance & low equity fees
On its residential mortgages with LVRs between 80.1% and 90% ASB only has top 20% lenders mortgage insurance (LMI) on 9.5% of its loans. And on loans with LVRs between 90.1% and 100% it has top 20% LMI on just 8% of loans.
Park said this LMI "collection rate" reflected its use on home lending by ASB's sister company Sovereign until April 2012 when it was replaced with a low equity fee. ASB has a low equity fee of between 0.25% and 0.50% on loans with LVRs between 80% and 85%, 0.50% and 0.75% on loans with LVRs from 85.01% to 90%, 1% on loans with LVRs between 90.1% and 95.1%, and 1.20% on loans with LVRs above 95%. See more on low equity fees here.
"We are constantly reviewing our lending criteria to ensure it remains appropriate," Park said.
"Every customer is assessed on a case-by-case basis depending on the individual borrower’s circumstances, taking into account a variety of factors including: a borrower’s ability to repay or service the loan repayments, the amount of their deposit and any other financial commitments they may have. Consideration is given to ensuring there is a buffer for a range of interest rates movements."
This article was first published in our email for paid subscribers. See here for more details and to subscribe.