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David Hargreaves examines the largest bank's move to go further than the Reserve Bank in reining in housing investors

David Hargreaves examines the largest bank's move to go further than the Reserve Bank in reining in housing investors

So, why did they do it?

Why did the folk at the country's largest bank - and largest home lender - decide to take up a more strict policy for housing investors than that currently recommended by the Reserve Bank?

Really any number of potential reasons come to mind for the ANZ to take the stance it has.

Firstly, it has clearly already filled its boots in terms of lending to investors, revealing that in the past two months nearly a third of its new mortgage money has gone to the investors. So, it has certainly got room now to ease back on the throttle.

Then there's a few other things to consider.

The Government must be one of those things.

We've seen clear signs of unease from the Government in recent weeks about the way the housing market has so quickly set on fire.

As we saw under the previous National-led administration, and now we are seeing under Labour, it's never a good look for a Government once the first home buyers, particularly, start getting locked out of the housing market.

It is politically embarrassing.

And the more the embarrassment goes on, then the more the possibility exists that maybe the Government might feel forced into some sort of kneejerk reaction - which might be adverse for the banks.

Worries about FHBs

Another reason for banks to be concerned about the current situation is not just that the first home buyers might be locked out of the market - and hence bad publicity all around - but also the possibility that the FHBs might over reach themselves financially when buying houses simply to compete with the superior firepower the investors have.

In that instance it becomes a two-way peril for the banks - it would be a bad look if a lot of people started getting financially stressed and it potentially has genuinely bad repercussions for the bank if mortgage holders aren't making payments. So, that's a potential two-way hit - bad publicity and bad debts. All bad for business.

Another way to look at this is to ask about whether there's concern about the sheer numbers of people lining up to buy houses as investments. Okay, we supposedly have something of an emergency regarding the number of people seeking housing. But that doesn't mean to say we couldn't end up with a glut of rental housing in say the mid-price range (above the cost of those currently homeless).

There must be SOME limit as to just how many houses can be bought to be rented out. I'm sure some of the investors who have clambered into the housing market in the past few months might end up being disappointed at just how skinny the rental yield is on their property - even at this time of such low returns on things such as bank investments.

If there are some disappointed investors out there in coming months - and they decide to put their houses/investments back on the market, that could cool things off pretty darn quickly.

Too far too fast?

It has to be assumed there is concern within the banking industry at how far and how fast house prices have been rising. 

Nobody will win if the housing market starts to fall over because it has simply risen too quickly - before incomes have any chance to catch up.

So, the banks themselves do have the chance to do something about this.

They provide the petrol for the fire by giving the money in the first place.

It is always better to be in control of your own destiny. 

Presumably by using its significant clout in the market the ANZ feels it can head off the prospect of maybe further regulation or measures being brought in that long term would impact its business.

Will others follow?

It will be interesting to see if the other banks follow suit though.

The four Australian owned banks are always in the interesting position have having someone watch over their shoulders (from across the Tasman). And if one of the other banks is starting to pick up market share then inevitably questions would be asked about why that's happening.

Which, in a nutshell, is why if one bank is starting to do tons of high LVR lending then the others have traditionally followed. That's what led to the Reserve Bank introducing the 'speed limits' on high loan to value ratio (LVR) lending back in 2013.

Ultimately, whatever has driven the ANZ to seek higher deposits from investors, I think it is welcome.

I didn't and don't think that a 30% deposit rule applied to investors as currently intended by the RBNZ will be sufficient to dampen the housing market.

Before the March lockdown and prior to the LVR limits being removed from May 1 there had been signs that investors were, even with the 30% deposit rule in place, starting to come back into the market.

We do know from previous experience that a 40% deposit rule could be effective. That was the limit the RBNZ put on investors in 2016 when the market was really raging previously and it did have an impact.

It's in nobody's interest

It is not in anybody's long term interest that 2021 begins with a housing market that resembles an inferno - because the whole country could end up getting burnt.

My hope is that the RBNZ will pick up the cue from the ANZ and simply amend its current proposals - and to say that from March all investors will have to find 40% deposits.

That would leave nothing to chance. That would level the playing field.

Then we really do need to see some proper action - not just words - from the Government in terms of how these long running New Zealand housing issues might be resolved. 

We won't fix this in five minutes, but let's at least hear some ideas.

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50 Comments

15
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What’s embarrassing is our homelessness rate

So a banker who gets rich off of lending money cheaply, pushing up house prices, says house prices are a problem.

"Nothing to do with us" they say.

To be fair, Zollner is the only Bank economist that talks with any common sense, which must be almost making her position untenable...

My broker called me today and explained thoroughly on how to avoid it.

How did your broker explain how to get round it Xing?

Just print what you need, after all, that's what our leadership team does ..counterfeit money from Mr Orr, so why not counterfeit forms to present.

go to a Bank other than ANZ?

Brokers and Real Estate agents are 21st Century neuroscientists don't you know.

I had to look up what neuroscientist meant but thanks for the compliment ;)

I have no doubt that you had to.

13
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Quite possibly just a 'virtue signaling' stunt by ANZ in an effort to embellish the brand as being 'part of the community' and a responsible corporate citizen. All NZ banks are involved in this pantomime. ASB is probably worse than ANZ in that respect.

That's my feeling, that they've picked up a few clues from our esteemed leader thus hoping to appeal to the disenfranchised as part of the "solution".

"Nobody will win if the housing market starts to fall over". Fascinating, in a policy sense, when the regulator pours petrol from a can labeled 2008, the government mumbles incoherently, the opposition dithers in lockstep, and regulated entities themselves take action. Interesting times.

12
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There may even be wide open space for a new political party. Presiding over the biggest wealth transfer & inequality explosion in a generation, with homelessness, unaffordability, child poverty, etc, Labour's fast becoming a centre-right party, in reality/outcomes if not self-perception. If they stay there, maybe the Greens will finally split the watermelon. One part could occupy the vacant political left. The rest could be a real Green party, with 15% and impact rather than perpetually scrabbling for 5% and relevance. Probably not, but fascinating times.

21
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There is and it is TOP. But many decided they were a wasted vote. Demonstrating their ignorance to the fact that both Nat and Lab have been a wasted vote for a decade or more.

A bunch of sheep we are.

I don't know the figures this election, but as I recall the previous one lots of people who wanted to vote for TOP didn't because they thought it would be wasted, but if they had, TOP might have just squeaked in. Democracy's a funny thing. But at least we don't have extreme partisanship, an electoral college, gerrymandering as an artform, constant electioneering, active disenfranchisement, legislators in lockstep with donors...

11
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The wasted vote argument is ridiculous. If you vote for a party that has a set of values and policies you believe in, how is that a waste? The waste is voting for blue or red because you don't want to feel left out

Agreed.

TOP is trying to achieve something that is not possible in a democracy. Well may be, in a new democracy, which we aren't.
One can imagine why Labour is gradually transitioning to the right and Green can never form the government.

Actually I disagree with your statement Rastus, I looked at TOPs policies and while they had some good ones, there were a few that were definitely not good. They seemed to have a view that owning an asset provided an implied income that could be taxed (for example owning and living in a home created some form of taxable income). Such an attitude in a political party is just rubbish, and worse it is in my view far left communism which is entirely destructive.

"were definitely not good": is a matter of opinion of course. Owning the house you live in does imply an income because it saves you the cost of renting a house.
Let's say family 1 own a house and earn 100k per year after tax. Family 2 next door rents the exact same type of house for 20k per year and earn 120k after tax.
Both families have the exact same living standards and after tax/rent income. Yet the renting family have a higher income so pay more tax. Fair?

The irony for Labour is they are injecting a lot of Govt. money into the economy because of Covid and because that is what Labour Govts. do, but it's all going to the right.

You can almost see the left to right inversion of Labour in 1984, where they effectively jumped to the right of National, and in effect pushed National to a central spot.

13
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Yep. It's maintain the bubble at all costs. The idea that 'nobody will win' is not correct though. Some people are in the position to take of themselves. But the vast majority are not. Personally, I'm a believer in creative destruction, but I know this is not palatable for most

This is like chewing some gums and use it to patch holes on the ship..

13
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I agree it will be interesting to see whether investors struggle to find tenants at the prices they expect.
Of course they're purchasing for capital gains, but I suspect a lot of them will find their rental a money sink. They won't sell though, cos CAPITAL GAINS. Buying an illiquid asset, with large transaction costs, for negative real yield makes little sense otherwise.

And they can most likely see the Global economic storm approaching as we go from the Liquidity phase into the Insolvency phase. How it impacts NZ is anyones guess.

Baarrrrp! An insolvency phase is incorrect!

They are simply not allowed mate. If it heads that way, they'll just create another $150B or whatever they need to keep it going. $2m house price median, no worries!

Adam B if the heat comes off and housing goes backwards RBNZ will take LVRs off again and buy up non performing mortgage loans just to avoid a decline in house prices. System is rigged now so investors buy with the knowledge that they are “collectively too big to fail”

"too big to fail" think ive heard that before...

And maybe the bank's economists have kept up their reading since 2008, including the modern tale of Jay Powell's epic mission, ably supported by 4 CB's valiantly seeking to outdo even US exceptionalism per capita, all to prove gravity is fake news. Here's just a few:
https://www.hussmanfunds.com/comment/mc201201/
https://www.crescat.net/crescat-november-performance-update-2/
A snippet from the first: "Presently, I expect that the completion of this market cycle is likely to involve a loss in the S&P 500 on the order of 65-70%. I realize, of course, that this sounds insane. The problem is that this projection is fully in line with a century of evidence..."

I hope that sanity does return to the housing market.
However keep in mind that owner occupiers including FHB account for 83% of the number of mortgages compared to investors 17% - so who is really driving the market???????

Investors currently account for just on 3,000 mortgages per month where as December 2014 to August 2016 the monthly number exceeded 5,000 / month and reached just shy of 7,000 in May 2016.
Putting the 3,000 mortgages in context; in October 2020, owner occupiers and FHB accounted for 20,658 of mortgages.
Not arguing that the ANZ move is not proper nor not desperately needed - just keeping a bit of balance / perspective as to reality. Given that investors and FHB are often competing for the same properties, it is good to see that this action favours FHB in that competition.

Let me play devil's advocate. Shouldn't ANZ be maxing out their loan book for the benefit of shareholders? If the bubble is to be protected at all cost, what do they have to lose?

and to play advocaten,...that's the thing about bubbles I guess, one day, when the last glittering layer of gilt on the tulip doesn't quite take...

I'd like to see a % figure for total value of mortgage debt FHB vs investor as not all mortgages are created equal.

ydab
Go to Xcel sheet for data ("Data Files") update monthly at
https://www.rbnz.govt.nz/statistics/c31

By % of total lending October 2020 - 17.9% FHB, 56.6% other owner/occupier, 24.4% investor, 1% business.

So investors are still borrowing more overall than FHB and a lot more per mortgage

10
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40% deposit, 8% interest rates would take a lot of heat out of the markets, get back to reality and reward the savers. I survived 19% interest rates in the mid 80"s. Won't happen though, think of our children's children, Mr Orr. Doomed to be for ever renters.

Nah. Banks do not act in the interests of "others". If they are doing it its because there is something in it for them - either they need to lower the risk profile of their mortgage book in order to avoid stumping up more capital reserves, or they are finding it difficult to securitise and sell the mortgage bonds with large numbers of investor mortgages in them. There will be a reason, altruism is not one of them.

Sorry, reported by mistake.

Unfortunately, however they spin it, it’s not the altruism deciding things here.

Awaiting to see John Key in the news explaining how he's saving our country...

I wouldn't put anything past Lord Key. He himself is a slave to dogma. Whole career built around it.

Simply put, this is the ANZ conveying what the Yanks call "optics". Virtue signalling, plus throw in a liberal measure of self interest. Who wants or needs a loan book of non performing loans if the market turns? Plus they can always say we did this without having to be told by the government.

12
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The USD is losing value ever day at some point the interest rates will have to go up in US to protect the USD from oblivion this will create chaos in most places around the world and hit NZ big time. Whatever the US put rates up NZD will need to go up more this over time will reduce house prices and create a spiral until we get to the point where a mortgage will be only 4 to 5 time average income not 9 to 10 time which is unsustainable

DTRH... definitely a lot more likely than most think. I wonder how many think there is more than say a 10% chance of a 30%+ drop at some stage? I would guess very few.

Dreaming

All fiat currencies eventually go to zero.

"Nobody will win if the housing market starts to fall over because it has simply risen too quickly - before incomes have any chance to catch up."

actually if prices dropped by 20% the only losers would be those who purchased in the last year, which is insignificant in the big scheme of things

'before incomes have any chance to catch up'.......how does that work in the low wage economy we have created?

I think prices remain flat for the next 100 years while our minimum wage rises at 0.5% inflation to get housing affordability back to where it needs to be....

RBNZ team should counter this ANZ moves, early 2021 firstly after toying with public for PR, they should keep out the LVR (stating Banks started to show their strict lending practices), ANZ and the rest of smaller herds will eventually cave in and back to put the LVR as pedestal trophy of PR. Once the RBNZ opening the FLPs into housing.. managed by building society & credit union. Is a sure follow back by Banks with loan rage give away for investors. By then end of March 2021, RBNZ keep pushing the OCR into negative.
All these recent feeling good, fake news about the surpluses, bouncy economy etc. - are all afraid for the next planned RBNZ moves. RBNZ, already have several mandated numbers to control apart from OCR for inflation, such as employment too, so it's natural for the next one mandated to them will be the GDP, Climate change/Carbon neutral bill (this is the next major stimulus excuse, after the Covid19) - watch the space.