Westpac NZ halts lending to offshore residential mortgage borrowers with overseas income

Westpac NZ halts lending to offshore residential mortgage borrowers with overseas income

By Gareth Vaughan

Westpac New Zealand says it's stopping lending to non-resident mortgage borrowers with overseas income in a move to reduce risk against a backdrop of fast rising house prices.

Changes introduced today mean Westpac will no longer lend to non-resident borrowers with overseas income, its maximum loan-to-value ratio (LVR) for NZ citizens and permanent residents with overseas income is being reduced to 70% from 85%, and borrowers on temporary resident visas will only be accepted if they have both a NZ address and NZ based income.

The move comes after Westpac's Australian parent, along with some other major Australian banks, halted lending to non-residents and temporary visa holders earlier this year. Subsequent to that The Australian Financial Review reported  both ANZ and Westpac had discovered they had approved "hundreds" of home loans backed by fraudulent Chinese income documents, allegedly put together with the assistance of mortgage brokers.

However, in NZ Westpac says it hasn't seen evidence of this type of activity, and nor is it citing specific concerns about money laundering. Rather, the NZ changes are being made to minimise risk from fast rising house prices in a buoyant residential mortgage market, the bank says, to make sure borrowers can meet payments if interest rates rise. 

The latest Real Estate Institute of NZ figures show a national median price of $490,000 in April, up $35,000, or 8%, year-on-year. In Auckland the median price was up $92,000, or 13%, to $812,000. And the latest Reserve Bank sector credit data shows housing lending growth of nearly $16.7 billion, or 8.3%, over 12 months to $217.5 billion with the highest annual growth rate - 8.3% - since June 2008.

Westpac's move comes after ANZ NZ outlined an even broader range of tightened lending criteria on Friday. And both banks' changes come with interest.co.nz having heard claims of mortgage fraud in NZ along the lines of that reported by the AFR in Australia recently. The tightened lending criteria from ANZ and Westpac also comes with the Reserve Bank talking about introducing an additional macro-prudential tool, alongside its limits on high LVR mortgage lending, in the form of debt-to-income limits. And the Reserve Bank announced today it's planning to tighten LVR restrictions to residential property investors.

However, Westpac says a key issue driving its changes is that with many offshore buyers it doesn't have their transactional banking business because this is done in their home currency overseas. Thus, with mortgage customers Westpac can't necessarily see cashflow or spending commitment changes that might be early warnings of a default to come.

"In line with our responsible lending practices and on-going review of lending criteria in a fast moving market, we have tightened policies in relation to lending and foreign income for non-residents," a Westpac spokesperson said.

"Verification of foreign applications is essential to meeting our lending criteria and obligations, but is operationally difficult in these cases. The tightening of policy reduces risk and will contribute to further strengthen our home lending portfolio with customers who we have a deep and long-term banking relationship with."

Westpac says the percentage of its mortgage customers affected by these change is roughly in line with the Land Information NZ data released last month, suggesting 3% of home buyers in the March quarter were foreign taxpayers.

Westpac's changes, meanwhile, will see it continue to lend to expat kiwis. A NZ resident living overseas earning their income overseas, will remain eligible for a mortgage, albeit with a maximum LVR of 70% now rather than 85%. And someone recently moved to NZ from overseas who is earning an income locally, will also still be able to get a Westpac mortgage at an LVR up to 80%.

ANZ moves too

ANZ has unveiled similar changes to Westpac. Here's a statement from ANZ;

We regularly review our home loan policies and processes. As part of a recent review, we are making changes to our criteria for applications that rely on Overseas Income. The policy updates summarised below are effective from today for customers who use overseas income to service debt in New Zealand. 

A New Zealand passport holder living abroad purchasing a property funded by overseas income is exempt from this overseas income policy and normal credit criteria apply. 

What’s changing?

• A maximum LVR of 70% is applied;

• Facilities are restricted to owner occupied properties;

• Boarder income not permitted;

• No interest only lending will be available; ANZ Flexible Home Loan will not be available;

• Standard residential property only, and will not be available for the purchase of bare land or construction; Lending is only available to individuals;

• Refinances are available, however no additional lending is permitted;

• No cash contributions available;

• We will honour existing pre-approvals  

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. We remain committed to helping customers into their homes and will continue to assist buyers with their plans for home ownership.

*This article first appeared in our email for paying subscribers early on Thursday morning. See here for more details and how to subscribe.

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Wow. Very curious about that one.

Will not have much impact as many overseas buyers are not opting for loan. When a chinese comes n buy 55 prooerty in a week, does anyone think, he applies for loan.

will only have a bearing when REA, accountants, and solicitors are captured under the AML/CFT legislation. They really should have been included at the outset.

The interest rates from overseas are much lower than NZ. Why would the overseas buyers borrowing from NZ banks???

Because of the massive exchange rate risks of borrowing in an offshore currency...

Read this article. Westpac and ANZ are the two banks quoted. Coincidence?
http://www.afr.com/real-estate/residential/foreign-property-investors-tu...

Anz. Then Westpac.

Après nous, le déluge???

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Nice accents, bro.

About time, though very pleased to see that at least the Australian banks are prepaired to do something to help reduce money laundering, hopefully this will shame our banks (The few that we have) in to taking on the same preventative measures.

Though of course this isn't going to prevent Non-resident Investor 'cash buyers' for still buying up NZ property, we really need to take steps to introduce measures to fully stop money laundering which really isn't helping us.

It's basically creating a boomerang economy, where the money comes in and then goes straight back out again having massively inflated house prices in the process. So it is very much a false economy that does far more harm than good. I know this is happening around the world but we do appear to be one of the main money laundering targets due to very lax policies.

It appears that most money launderers to go to quite long lengths to disguise their activities.
Here's an article from The Province a Vancouver media source that shows how they operate: http://www.theprovince.com/business/follow+money+evidence+submitted+frau...

Nowhere do they say anything about what would happen if a non-resident mortgage borrower were to go into negative equity and then just stop paying the mortgage and having no further interest in the property.....
If this was a NZ resident, the bank would no doubt attempt to recover the difference between the outstanding mortgage and the sale price, or indeed to bankrupt the borrower. But if that person is half the world away, isn't this just like "jungle mail" in the US where there was no comeback at all!
The imprudence of the banks is stunning!!!!!!!!
Slightly mitigated by stopping this obscene practice.

Jingle

Thanks.

many of us have been calling a ban on non residents buying existing homes as its of no benefit to NZ.
now the banks and I suspect with the anti money law in the back of their minds are saying the risks out weigh any income so are stopping.
are you listening yet JK and BE,

I'm on a 5yr Skilled Migrant Visa, with 2 Auckland based properties, a Kiwi wife, 2 kiwi children and a Residency Application in progress. I'm both NZ based and with NZ Income however Westpac have been refusing my applications for the past 6 months for this exact reason, firstly because I wasn't a resident they said to come back when the application was in progress, but when I did they said come back when it's been granted. So nothings really changed from where I sit.

I'm for the change in principle but think there sould be some more detailed provisions in there for those with visa's greater than 2 years to purchase, I know the article states there is but from my experience there isn't.

Yep Danger. It's a bit hard. But I have to say I believe only Citizens should be able to buy New Zealand Property.

If that's the way it has to be then renter rights need to be improved especially in regards to tenure.

yes they should bring in german style laws so a renter can have a stable life.
many long term investors like good tenants that will stay long term and the good ones (That are invested with positive cashflow) tend to keep the rent increases to a minimum .
its the short term investors that buy for over the 2 year period then sell to get the CG that are the problem

Ironic while Kiwis are buying property in Australia,USA,Canada,UK & Fiji.

Look at (Silver Fern Finance) & (Kiwi Home Loans Pty Ltd) for Kiwis buying property in Australia on Facebook.

have you even looked into buying an investment property in Australia as a kiwi, its not simple and you need a good tax accountant. also you pay stamp duty
http://www.gra.co.nz/ausnzinvestors.html

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Never should have been 'loaning' to non residents with no NZ passport in the first place based on risk alone.. What else they been up too?

What else they been up to? ... now that non-resident buyers have to provide a TFN (tax file number) for their country of tax-residence you can BET their is a red-hot black-market in bogus fake stolen TFN's

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If the immigration tap is turned off, as is the indication, then the ponzi ends. That's the precipitating event I suspect.

Why instantly blame migrants for this?? It is property investors that are the problem regardless if they are local or foreign.

its not just one thing but a whole lot combined.
first its the banking system that puts a low risk rating on property and can create funds pretty much out of thin air to lend against it.
next you have a tax regime that favours property investment against any other form of investment
then you have a government unwilling to change any policy settings, tax, immigration , financial,,property rights of ownership
then you have local governments policy settings to try to jam more people into less space.
until any of these are addressed nothing will change

I'm not blaming migrants - I'm blaming the government's immigration policy. Due to it, there has been a huge increase in demand for rental accommodation, further encouraging property investment to service that increase in demand. Auckland is full - made evident every morning and evening at peak hour. The immigration policy is a huge drag on productivity. Michael Reddell (ex-RBNZ) writes extensively on it - here's a recent posting;

https://croakingcassandra.com/2016/06/07/thinking-about-changing-immigra...

and an earlier one focusing on productivity effects;

https://croakingcassandra.com/2015/09/04/immigration-a-critical-economic...

Plucking numbers from the air, buy 500k property, @80% LVR= 400K loan. with revolving credit facility or offset account. Bank expects to collect interest on 400k. Shortly after deposit 395K into account pay interest on only 5K. Refinance later when value has increased to lock in your your equity as liquid cash. When the crunch comes, empty all the cash you can and return to the old country to avoid the embarassing questions from the bank about where they can recover the negative equity from. Seems simple......

especially if the countries in question have a billion + population and corrupt culture to overcome.
as a aside I was listening to the indian finance minister talking about bringing in GST to try to capture the taxes not paid via the cash society , good luck with that idea.

A good start.
But is this a pre emptive move to stop more, straight forward tightening by the RBNZ, say DIT, LVR and other restrictions ?
Though, at the end of the day, it won't affect cash buyers, will it ?
And that is a whole different ball game, isn't it ?
Time will tell...

If bank have done it. Their has to be a reason. Is the government blind and deaf. Shame

Willthe PM Act now

The banks if have taken action, can they share the data based on what this step has been taken forkuwi to know

What a show of nothing. Overseas speculators surely accessing funds at far lower rates from offshore. Truth more like our banks just can't compete.

[Shouting edited out. Ed]
Shame to National government for not only taking action but for not accepting the truth

don't know. it worries me that banks are more careful than the govt in this matter.

Most overseas speculators do not take loan so the impact will not be much.

True, so I wonder as to whether this is really just a corporate 'take the heat off the government' response?

Or for that matter, the heat of the RBNZ?

But according to Dr Nick Smithwit we have hardly any foreign offshore buyers so what's the problem?

Well it certainly isn't a new problem, housing markets across the world are also feeling the same pain:-
Article from The Gaurdian: Stop rich overseas investors from buying up UK homes, report urges
https://www.theguardian.com/business/2014/feb/01/rich-overseas-investors...

The report (2014), called Finding Shelter, cites statistics showing that 85% of prime London property purchases in 2012 were made with overseas money. Estate agent Savills found that last year £7bn of international money was spent on "high-end" London homes, with just 20% of that spent by UK citizens. Two-thirds of homes bought by people from overseas were not purchased for owner-occupation but as investments.

Civitas says the problem is not confined to the top end of the market and that overseas buyers are also acquiring less expensive newbuild homes. It says that over the past two years only 27% of new homes in central London went to UK buyers, while more than half were sold to residents of Singapore, Hong Kong, China, Malaysia and Russia.

just finished listening to carl ichan talking about cheap credit holding up assets so its a worldwide problem that will not correct until it explodes into GFC2
http://www.cnbc.com/2016/06/09/carl-icahn-soros-has-points-with-bearish-...

what is embarrassing is that the risks are now so high that the banks themselves are acting even before they are forced to

Just shows you that the Govt and Reserve Bank are completely useless.

According to the Government stats "3%" of buyers are foreign based (i.e. non-citizens who are non-resident)

So the banks are saying they will now stop loaning money to the portion of these buyers who want NZ funded loans. Wow, talk about applying the brakes to the housing market. How many people will that even impact?

Wow again, these are very good measures, wellwell done Westpac & ANZ. It does make me think they are more exposed than they admit though

The new launched CHINA CONSTRUCTION BANK and INDUSTRIAL AND COMMERCIAL BANK OF CHINA in Auckland branch is more than happy to take new clients and offer better mortgage rates

that is what broker start advertising today....

Don't you think that maybe a ph call to Westpac from the beehive maybe behind this, along the line hey I got this little problem with the housing market and I need some positive spin, Is it possible that you put a stop to offshore buyers as most pay cash or are kiwis citizens living abroad so very little impact really, so do me a favour as we bank with you,Cheers Mate.

Anyone n everyone may yell and understand housing problem except the govt. Wonde Why nWhat is their motive and interest. Shame

Good BUT does it matter as the percentage of overseas buyer who jacks up the price, do not borrow as the only reason that they pay unheard of price is that are more interested in converting their unofficial money (Money Laundering) and it is them due to whom the market shoot up when they buy a property of $900000 sold few months back to 1.1million.

Though Good measure but is not good enough. Reality is that National Government as well RBNZ are afraid of taking any measure as they know that the bubble is on dangerous level and worried about it bursting but what they do not realize is that by delaying it creating more problem and the earlier they put measures the better.

Please advise what is the logic than saying that housing prices is in dangerous teritory and in future will do........... WHY IN FUTURE WHY NOT NOW WHEN YOU KNOW THAT IT IS IN DANGEROUS TERRITORY. SHame

So painfully obvious problem to everyone except the National?
Sad enlightenment when Government fails to do anything significant on a major 25 year problem :(