By Bernard Hickey
Most fans of Monty Python will remember the scene from the restaurant in 'The Meaning of Life' movie when John Cleese offers the stonkingly obese Mr Creosote a 'tiny wafer thin' mint to finish off his meal.
At first, the vomit-soaked and "absolutely stuffed" Mr Creosote refuses. But then John Cleese insists: "Oh sir, it's only a tiny, little, thin, one..."
Fans will remember what comes next. Mr Creosote ingests the morsel and then explodes in a shower of intestines and gruel. He is left sitting at his table, ribs dripping and heart beating, exposed in front of his fellow diners.
My favourite part is when John Cleese places the mint on Mr Creosote's tongue and then sprints off to find cover behind a wall. He knows what is about to happen, but doesn't seem to care much because he simply gets paid for each morsel he can stuff down the diners' throats.
This week I heard about a 'tiny wafer thin mint' moment in New Zealand's housing market. A mortgage broker mentioned in passing to me that one of the big four Australian-owned banks had offered an Auckland rental property investor a 30 year, no interest mortgage with a loan to value ratio of 95%.
I had thought this sort of housing bubble behaviour had dried up and gone away during the Global Financial Crisis. It seems it's back as banks grapple with very weak lending growth.
Banks make money by lending more and then charging more for that lending. They're finding it very difficult to keep their shareholders happy, who are used to double digit profit growth and returns on equity. So they're trying again to tempt households and property investors that are already stuffed with debt to take on yet more debt.
Luckily for the economy and the households themselves, most are refusing the extra mints. Household lending growth is running at a record low annual rate of 1.2%, down from the 15% plus seen through much of 2004, 2005 and 2006.
That's why the Reserve Bank seems reasonably relaxed about the return of some of the bubble type practices.
Westpac has been advertising 95% home loans for months. ASB and BNZ have also been very aggressive with deals offered to rental property investors. But Governor Alan Bollard said he was more focused on the actual lending growth figures, rather than the practices themselves.
Households realise they are stuffed with debt and many are having second thoughts about whether the game of hoping for tax-free capital gains will actually keep working. Firstly, there hasn't been any capital gains for nearly four years in just about every area except central Auckland.
Also, the removal of depreciation allowances for property investors has fired a shot across the bows of many investors. Many of the more experienced property owners and investors have become more cautious.
The real danger though is a new generation of home buyers desperate to get onto the property ladder are tempted into taking on a life-long mountain of debt that may prove unsustainable if interest rates increase and, heaven forbid, they lose their job.
Let's hope also that the banks are being careful and are happy for their shareholders to take the pain, rather than the taxpayer through any new bailouts or guarantees. I want the bankers to hang around after they have placed the mint on the tongue of borrowers.
Just in case Mr Creosote blows up again.
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