By Bernard Hickey
New Zealand's biggest bank, ANZ, has tightened its lending criteria for rental property investors and owner-occupier borrowers by reducing its Loan To Value Ratio limits, and by stopping lending to investors wanting to buy sections and apartments off the plan.
The move, which may slow development of new rental properties, follows news that bank mortgage lending growth rose to an annual rate of 8.3% in April, which was the fastest growth rate since mid 2008 and four times faster than wage growth. The Reserve Bank has also signalled its concern about risks to financial stability of fast-rising house prices and fast lending growth to rental property investors, who are buying more than 40% of the homes up for sale.
Finance Minister Bill English also confirmed on Thursday that the Reserve Bank had approached the Government to consider including a debt to income multiple limit on lending, similar to the one applied by the Bank of England, where lending over 4.5 times income is restricted. The Reserve Bank said last month that more than 60% of rental property investors had debt to income multiples of over 6.
ANZ communicated the changes to mortgage brokers on Friday afternoon and a spokesman confirmed the changes to Interest.co.nz.
"We are making these changes to ensure that ANZ is appropriately positioned in the current housing environment, taking into account supply pressure in certain areas and ensuring we continue to support New Zealander's financial interests," ANZ's Head of Mortgage Adviser Distribution Baden Martin said in a memo to brokers.
ANZ said it had reduced the maximum LVR for owner-occupier borrowers in Auckland to 85% from 90% and had reduced the maximum LVR outside Auckland to 90% from 95%.
It also said it had removed the combined collateral exemption for rental property investors in Auckland, which meant the maximum for new lending to Auckland investors would now be 70% of the value of the property. Previously, ANZ had allowed investors to spread their equity across their portfolio to ensure their combined loan to value ratio was under the Reserve Bank's limit for Auckland investors of 70%, which was applied from November last year. This meant some new loans were for LVRs over 70%, but were under 70% when considered right across an investor's portfolio.
It said pre-approvals for lending over 80% would now only be available to existing ANZ customers with three months of bank statements, while new customers could only apply if they had a signed sale and purchase agreement.
ANZ also reduced the maximum LVR for lending that was exempt from the Reserve Bank's LVR rules (new builds and refinancing) from 95% to 90%.
Investor lending for sections and off-the-plan apartments stopped
But the biggest change of interest to property developers and market observers hoping for new housing supply was ANZ's change to its criteria for new homes and sections.
"Residential Investment Lending is not available for the purchase of bare land (including where the intention is construction or turnkey). We will still consider construction and turnkey lending for Owner Occupiers," ANZ said.
ANZ spokesman Stefan Herrick later confirmed the change in policy also applied to rental property investors applying for loans for apartments being bought off the plan.
"The changes are ongoing fine-tuning to our lending rules to take account of current market conditions," Herrick said via email.