ASB retail head Ian Park says ASB's surge in high LVR residential mortgage lending being 'encouraged' by borrowers using KiwiSaver money towards a deposit

ASB retail head Ian Park says ASB's surge in high LVR residential mortgage lending being 'encouraged' by borrowers using KiwiSaver money towards a deposit

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."

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12 Comments

So the 'subsidy' or more accurately..the handout from govt ...is playing a part in blowing the bubble that is pushing the price of a typical Kiwi box of ticky tacky out of reach of the very peasants intending to use the handout...what a farce.

Do you honestly think a $10k subsidy on houses worth less than $400k, for couples earning less than $100k is partly blowing the housing bubble?

The sales driving high median house prices - properties in Grey Lynn and Mt Eden selling for mutiple times CV - are so far removed from the subsidy that it's irrelevant.
Even if the government subsidised 10,000 people with $5,000 each ($50m total), it will only ever affect the sub $400k housing sector - that's where the subsidy is aimed at.

@Zoltinger 10.49am - totally agree with you - I think ASB is having a laugh.

Stupid headline and analysis.  It could just as easily read.  " Desperate couples seeking first home, thrown lifeline by Kiwisaver Deposit Scheme."
You can make anything you like out of this.  My guess the bank is manipulating along the line of "Nobody is going to get a house unless you let us keep doing the crazy high LVR thing"

And that is exactly what the fools in the Beehive have been told to do...and they in turn have told Wheeler to back off...the banks run the place and the Kiwisaver farce is there to help THEM....!

*Sigh...*
Ian Park said that the money was coming from people accessing their KiwiSaver savings.   He didn't say it was from First Home Subsidy payments.   The vast majority of people have used KiwiSaver to buy their first home without that subsidy - and you can't use the Gvt incentive money like the Kickstart or member tax credits when you do that.  
This aspect of KiwiSaver confuses everyone.  

Fair point BC, and apologies for causing that confusion in this instance.

No worries, Gareth.   Thanks.

I've added another paragraph to hopefully provide a bit more clarity.

We can't all be animal lovers.

Doesn't explain why ASB are lending more money at high LVR's recently. Westpac & ANZ are big Kiwisaver players also. In the end the bank makes the lending decision, it doesn't matter where the deposit comes from, I don't understand the ASB's logic here.
ASB needs to front up and say "yes we have been the most aggressive bank in the market recently and it's because we have made a commercial decision to be more aggressive and chase revenue".
I quite like the RBNZ's proposal to ensure that the banks credit appetite does not swing wildly, the 90 day rolling average that they are proposing makes good sense to me. Without a short term measure banks will always hide behind their 'average overall portfolio LVR' which takes a very long time to budge.
A 90 day rolling restriction will ensure we don't get individual banks getting really aggressive in the short term which fuels property demand and helps create bubbles.