By Bernard Hickey
In the last couple of years borrowers and bankers alike haven't thought of money as something that was in short supply.
If you could afford a loan with interest rates at 5% you could expect your bank to say yes with a big welcoming smile.
You could even expect them to fight among themselves trying to lend you that money.
Thousands of dollars of 'cash-back', 'free' flat screen televisions and tablet computers are now the norm for mortgage borrowers.
Your banker is now more likely to suggest you borrow more than you think you can afford than the other way around.
A third of all new loans are now for loan to value ratios of over 80%, which is double what it was a year ago.
Annualised lending growth has almost quadrupled to 4% in the last year. Banks have no problems finding the funds to lend out with LVRs of 90 to 95%.
It's only in recent months that lending growth has exceeded growth in term deposits, and even then, it's easy and cheap again for banks to supplement their stocks by borrowing in hot money markets offshore.
Just like the stacks of 3 litre bottles of Coke at the entrance of Pak'n'Save, mortgages are piled high and going cheap.
The implied threat that borrowers should buy now while stocks last just wasn't credible after almost 5 years of record-low interest rates and an escalating series of mortgage market skirmishes between banks.
Until now.
The Reserve Bank finally got serious this week about dismantling those big stacks of Coke and putting them back on the high shelves away from the fruit and veges section.
In a surprise move, it announced it was seriously considering increasing the capital requirements for high LVR loans.
In one fell swoop this would force banks to ration those high LVR loans, most likely by increasing the interest rate for them.
That contrasts with the current situation where often it is the riskiest loans to the most stretched customers with the least equity that get the lowest interest rates as banks fight for market share.
We know the Reserve Bank is serious and the banks are worried because the banks said they were surprised and disappointed at the regulator's 'hasty, unjustified and poorly researched' proposal.
So what does that mean for borrowers?
If you were thinking of waiting until later this year or next year to get a high LVR mortgage then you might want to get a wriggle on.
The Reserve Bank has given the banks until April 16 to respond and seems keen to move quickly.
Meanwhile, it is also working on so-called macro-prudential controls that could include actual limits on LVRs, which would physically stop the banks from offering 95% loans. These rules could be in place later this year.
Even the National-led government seems determined now to nip the housing boom in the bud to avoid the Reserve Bank using its blunt instrument of an interest rate hike that would hit all borrowers, regardless of whether they were home owners, high LVR borrowers or businesses.
Perhaps the banks will be changing the marketing campaigns for the flat screen televisions and 'cash back' to include the exhortation: 'Buy now while stocks last!'.
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This story first appeared in the Herald on Sunday. It is used here with permission.
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