ANZ takes another 'pause' on offering low deposit home loans

Personal Finance / news

Country's largest bank turns off the tap on mortgage lending to those with deposits under 20% again

27th Jun 22, 1:45pm by David Hargreaves

The country's largest lender ANZ is taking another 'pause' on mortgage lending to those with deposits of under 20%

The bank had only reinstated under 20% loans in February after being among a group of the big banks taking time out from low deposit lending last November.

An ANZ spokesperson, in confirming the 'pause' noted the 10% Reserve Bank cap on lending banks can do to customers with less than 20% deposit.

"To comply with these tightened restrictions, ANZ is pausing new home loan applications where the loan to value ratio (LVR) is greater than 80%. Customers with existing approvals are unaffected until the expiry date, at which point we’ll need to apply the updated policy."

She said ANZ "remains open" for all other home lending, including lower deposit loans for new builds.

Asked how long the 'pause' might last for, the spokesperson said: "The steps we’re taking are a temporary measure and as soon as we are able we will commence providing approvals for low deposit lending again."

The latest move by the country's biggest bank comes amid ever rising mortgage rates, with all major bank rates for longer than a year over 5%, while at the same time house prices are sliding.

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67 Comments

by kpnuts | 27th Jun 22, 1:53pm 1656294801

Seems like a big chunk of existing customers lost enough equity to put them in this low equity bracket and force a change to comply -- if so then we can expect the other banks to follow very shortly

by realterms | 27th Jun 22, 2:22pm 1656296529

Interesting idea. What valuation would the banks be using in such a calculation though?

by Pragmatist | 27th Jun 22, 2:24pm 1656296666

Nope, LVRs aren't reassessed unless there is a default event or an increase in lending.

by Beanie | 27th Jun 22, 2:54pm 1656298465

So if your equity drops below 20% and you need to move house..your only option is to buy a cheaper one. Probably a much much cheaper one. Likely a lot of recent home buyers are going to find themselves trapped.

by Pragmatist | 27th Jun 22, 2:53pm 1656298413

Nope, loan portability is a thing.

by Pa1nter | 27th Jun 22, 2:56pm 1656298619

Oh come on. Is there not a scenario that has people suffer or lose the shirt off their back as the result of their house purchase?

Dont take this away from us.

by Pragmatist | 27th Jun 22, 3:00pm 1656298831

Oh, sorry, better not kill the epicaricacy.

by Beanie | 27th Jun 22, 3:11pm 1656299498

Are you saying that if a house purchased for $1m with 20% equity then gets sold for $850k, the bank will let you purchase another property for $850k ?

by Yvil | 27th Jun 22, 3:20pm 1656300000

If you bought badly and only your house goes down by 20%, you're in trouble. If you bought averagely and other houses go down by the same rate, the new house you want to move to, will of course also be cheaper. If you bought well and your house keeps its value while the others drop, you're looking great.

by IT GUY | 27th Jun 22, 3:45pm 1656301527

the rich get richer, true land bankers doing great here, in the early 90s UK banks let people who where good payers move negitive equity to a bigger home..... its definitely going to get interesting

by Pragmatist | 27th Jun 22, 3:31pm 1656300718

Not me, the RBNZ.

https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/regulation-an…

Point 19. Whoops, make that 14.

And David Chaston, are your web programmers actively trying to make this website user unfriendly? Why is pasting into comments a complete PITA both on mobile and on desktop in chrome. "Press Ctrl+V to paste. Your browser doesn‘t support pasting with the toolbar button or context menu option." It bloody well does on every other website I use.. the problem isn't the browser.

by Beanie | 27th Jun 22, 3:41pm 1656301305

Ok ta. It's point 14. So the RBNZ won't penalise the bank for taking on the 95% lvr loan, but will the bank still want to do it? If not you are stuck where you are or back to renting.

by Pragmatist | 27th Jun 22, 3:56pm 1656302171

Why not, they don't make money if you don't have a mortgage with them.

by MisterB | 27th Jun 22, 4:53pm 1656305620

Because they are taking on an increased risk and capital costs ... all that happens is that it doesnt count towards the speed limit (breaching that means losing banking license). The risk weighting and capital will be higher.

let's say you borrowed $800m for a $1m property last year, then sold and shifted to a similar house that is now worth $800k -- so you sell yours for $800k and buy in the same market for $800k... I very much doubt that the bank is going to let you have a 100% loan in that scenario.

Neither does a 90% investor new build loan, but banks arent doing those either.

by Pragmatist | 27th Jun 22, 5:12pm 1656306767

There is no increase in risk, or capital costs to the bank, the house you sold and the house you buy are worth the same in your scenario. The only thing that has changed is the title the security is registered against. Same loan, different security. I doubt RWA would change, again, no increase in lending, no new origination, same loan, different security.

by gnx | 27th Jun 22, 5:15pm 1656306909

I think you need to do your sums again Pragmatist.

theres 200 grand of equity that’s gone missing….so 100% leveraged

by Pragmatist | 27th Jun 22, 5:19pm 1656307164

That happened before they moved the loan to the new property. Its a bit of a sunk cost fallacy.

by MisterB | 27th Jun 22, 5:37pm 1656308279

No, you're not right.

The loan is secured against the property. So obviously a different security changes the risk profile and RWA. Under your argument, the loan could stay the same even if secured against a property worth half the original value - let's say they shifted to an apartment. The bank would absolutely require a reduction in borrowing.

The risk weighting will 100% be based on the borrowing divided by the new security. Moving houses is a credit event. The RBNZ is only saying they will exempt it from the speed limit. Not the same thing as a bank deciding to lend, and at what price.

Not sure where you're getting your ideas from?

by Pragmatist | 27th Jun 22, 6:40pm 1656312032

<blockquote>Under your argument, the loan could stay the same even if secured against a property worth half the original value</blockquote>

I said no such thing. The bank wouldn't want a lesser valued security, it would have to be the worth the same or more.

From reading the RBNZ documents, like the one I linked above, and BS19, and all the reading into the regulatory framework (BASEL 1,2 &3) I did a while ago.

Where did you get yours?

by MisterB | 27th Jun 22, 10:31pm 1656325880

But it is not worth the same mate. The original security, at origination (which is what matters for capital and risk weightings) was $1m, and the new one isnt. There isnt a bank that would agree to a 100% LVR loan in that scenario. They would absolutely need a pay down, regardless of RBNZ speed limits.

by Pragmatist | 27th Jun 22, 11:29pm 1656329397

Lol, you're swapping a security with a current value for a security of the same current value. There is no new origination, there is no new loan.

You need to provide some evidence rather than just your feels.

by YourHomeLoan | 28th Jun 22, 11:54am 1656374040

Under that scenario the loan portability application would be declined. Obviously.

by Frilken | 27th Jun 22, 3:15pm 1656299747

I had to look that up. A word for our times....

by Yvil | 27th Jun 22, 3:22pm 1656300128

I also had to look it up, I'd say a word for Interest's comments section

by Market Interest | 27th Jun 22, 3:29pm 1656300586

That is a fantastic word. Why have I not come across it before? I shall have to use it in conversation.

by jo147 | 27th Jun 22, 5:56pm 1656309394

I had to look up pronunciation at the idea of using it in a verbal sentence...

by Nzdan | 28th Jun 22, 8:03am 1656360189

I've always used Schadenfreude. Good to have an English equivalent.

by IT GUY | 27th Jun 22, 3:12pm 1656299545

not a confirmed thing, more of an oh shite thing

by MisterB | 27th Jun 22, 4:45pm 1656305134

This is new loans only - the RBNZ speed limits do not apply to back book, nor does LVR get reassessed as markets change, it's at the point they originated. However, ANZ does also report on what it calls 'dynamic LVR' in it's market disclosures, so who knows how that might change.

by DTRH | 27th Jun 22, 1:59pm 1656295195

With prices falling fast 20% deposit could disappear quickly . Banks are not stupid they know what is coming over next number of years if people or businesses are over leveraged insolvency awaits them.

by Miguel | 27th Jun 22, 3:51pm 1656301899

Correct, this has nothing to do with RBNZ rules. ANZ publicly said they had room within RBNZ caps a while back but put onerous terms (like requiring massive amounts of spare income to service the debt). Yet they are now removing low equity loans even from people who can easily service.

Banks see a high chance that 20% equity disappearing as prices fall, so are pulling back on lending.

anyone who thinks the tweaks to CCCFA rules will see the market pick back up, are in for a rude awakening.

by MisterB | 27th Jun 22, 4:55pm 1656305734

The RBNZ measure is a 3 month rolling one and they can only do max of 10%, so will no doubt have appetite lower (like 8-9%). So if there is not a lot of lending under 80%, they need to slam on the brakes for over 80%. It's just maths.

by Gibgibgib | 27th Jun 22, 11:02pm 1656327753

100%. They're constantly having to monitor the levels to remain below 10%. With less under 80% lending on the books there's not enough to offset the current over 80%. If must be quite bad this time as it's blanket no over 80 unless there is an exemption (previously could do approvals for existing customers or topups).

These pauses will continuously come and go and not in sync with other banks.

by Dale Smith | 27th Jun 22, 4:15pm 1656303301

Exactly, they want to keep a healthy chunk of your equity (to lose first) between what they lent you and any possible fall in valuation.

In particular in a distressed mortgagee sale in a falling market, which they have to take to auction to show it is a hands-free open-to-the-market sale, then these types of sales can get up to 15% less than if they had been sold with a bit more and longer effort by other sales means.

by bobestm | 27th Jun 22, 2:34pm 1656297254

One part I am unable to agree is the statement that "interest rates will keep going up".

That can only be true if prices continue to rise year on year and therefore reflected in the CPI.

With contraction of credit looming, slowing home sales and oil prices topping for this year, this time next year should see inflation tick down and therefore result in slash of the OCR .. at least that is what has happened?

I am also surprised by the lack of movement in asking prices .. they have dropped but not by much.

Any thoughts?

by ShoreThing | 27th Jun 22, 2:35pm 1656297351

oil prices topping for this year

Bit early in the year to call the top, don't you think?

by bobestm | 27th Jun 22, 2:49pm 1656298152

Good point, but if oil stays steady for this year, I am inclined to think that we are stuck with this $3 per litre or near of petrol unless we start producing more of oil. But given the current political scene against oil exploration this seems less likely.

by Yvil | 27th Jun 22, 2:47pm 1656298062

Can't see "the statement that interest rates will keep going up", where did you read this in this article?

by bobestm | 27th Jun 22, 2:53pm 1656298386

It is not stated in this article. Its more based on what I have read from various sources such as news, bank economists etc. It would be nice if these source provided a time reference for context.

by ShoreThing | 27th Jun 22, 3:05pm 1656299108

They do, here are ANZ latest forecasts and RBNZ forecasts from the latest MPC.

https://www.anz.co.nz/about-us/economic-markets-research/economic-outlo…

https://www.rbnz.govt.nz/hub/news/2022/05/monetary-conditions-tighten-b…

by bobestm | 27th Jun 22, 3:21pm 1656300093

Thanks for those links.

Reading the ANZ outlook, an excert from that is an interesting read:

We expect OCR hikes, supported by the general

monetary tightening underway globally, will

successfully take the heat out of inflation in time

(figure 6). Tradable inflation will slow alongside

global developments (there’s already evidence of

weakening orders for Chinese manufactured goods,

which should see shipping costs soon start to fall).

But it’ll take a loosening in the labour market and a

housing slowdown to tackle non-tradable (domestic)

inflation – that’s a longer-term project. .......

Previously, we had the

OCR gradually “normalising” from early 2024, but we

have pushed this out to the second half of 2024.

That is their target .. so not much long.

Unless we see significant job losses, I am not seeing major drop in prices.

Any thoughts ...

by ShoreThing | 27th Jun 22, 3:29pm 1656300579

I think inflation will be elevated for years (3+), and that while interest rates will rise, they won't rise significantly enough to get it under control. I think this will be by design, as there is just too much debt out there to sustain the kind of interest rates needed to get it under control. Thus, the fabled "soft landing" will be higher inflation for everybody to avoid a complete meltdown. New Zealand will be forced to lift interest rates alongside our trading partners in order to defend our exchange rate, but it won't get to the levels of financial apocalypse that some are hoping for.

by Hummy | 27th Jun 22, 9:10pm 1656321048

That's where stagflation comes in. We in trouble.

by Yvil | 27th Jun 22, 2:41pm 1656297710

Things are getting worse for FHB's. Many thought that lower prices would be great for them, few understood that getting a loan would become much more difficult and more expensive (credit tightening)

by Pa1nter | 27th Jun 22, 2:59pm 1656298746

Who'd have thought "affordability" wasn't just the purchase price.

by Yvil | 27th Jun 22, 3:16pm 1656299781

Well… many on this site !

by Fluffybunny | 27th Jun 22, 3:28pm 1656300495

after the current crunch and reset of prices has passed through, and once lending frees up as part of The next credit cycle.

Could take years.

Then it's prices to the moon baby!

If your a potential FHB right now and are able to keep saving... What's the harm in saving and holding TDs at present? The retreat in housing and equities is faster than inflation.

by Pa1nter | 27th Jun 22, 4:01pm 1656302483

The only harm is the lost time, I guess.

by Albert2020 | 28th Jun 22, 6:37am 1656355061

You think we would be having this conversation if median national house price was $400k.

by Pa1nter | 28th Jun 22, 9:20am 1656364831

Depends what the interest rate is. If it were 20%, yeah, probably pretty unaffordable.

by Solid_Granite | 27th Jun 22, 3:03pm 1656299020

No we just wanted house prices to fall so home owners can feel the pain.

by Yvil | 27th Jun 22, 5:29pm 1656307796

Full of epicaricacy. (thanks Pragmatist)

by Von Metternich | 27th Jun 22, 2:58pm 1656298731

So is ANZ the most in trouble bank or something?

It seems like ANZ is taking very intense defensive loan control with an expectation of large scale defaults.

by Pa1nter | 27th Jun 22, 3:00pm 1656298824

They're the biggest bank in NZ, are are probably wanting to mitigate their potential losses. And dont care if they miss out on the higher risk stuff.

by Independent_Observer | 27th Jun 22, 4:37pm 1656304643

Biggest exposure to NZ property

by IT GUY | 27th Jun 22, 3:16pm 1656299762

This is a forward looking move to protect buyers and the bank, 20 down from their registered val is prob 30-35 off the peak, they want these buyers to save there wad, not spuge it before we get to the bottom

by Wrong John | 27th Jun 22, 3:18pm 1656299915

All our big banks are essentially mortgage banks. With 70% of their books in residential property there is a big risk to that particular market. If the market gets to minus 30% from peak, then we could have the situation where the banks themselves are scrambling, although I do note the RB stress test says otherwise. At minus 30% plus everyone on all sides of a mortgage is on the line. Just a little bit of bad luck at that moment and....

by IT GUY | 27th Jun 22, 3:27pm 1656300464

30% off is no issue but between 30-50% there be dragons, especially if it mores into diary farm values and commercial real estate..... gets ugly then....

by Fluffybunny | 27th Jun 22, 3:32pm 1656300743

Even +30 from peak is not a major for our banks.

Only a small % of overall mortgage holders took on max loans over the past 2 years.

Prices are coming down and it's not going to be all that spectacular.

What's a 50% drop if you've only got 6 years left to pay your mortgage off?

by IT GUY | 27th Jun 22, 3:54pm 1656302086

6 years good, 29 years of a 35 year mortgage not good. your milage may vary

by Fluffybunny | 28th Jun 22, 10:15am 1656368116

Yes. Individual circumstances will vary. But in terms of the banks wider portfolio and therefore risk position, relatively few customers are exposed to a degree that it causes structural concern to the bank as a whole.

There is no Risk of our banks collapsing. Its not the same situation as 2007.

by OldSkoolEconomics | 28th Jun 22, 7:58am 1656359935

The problem wont be house prices directly but will be the reverse of the 'wealth effect' that kept people spending during the pandemic. Now people will 'feel' poorer beacause their asset values are dropping and we at the same time inflation is making our income worth less, wages rises are static and we are all saving in anticipation of bad times ahead. So a perfect storm of ways to stop spending.

Whilst this will eventually bring inflation under control.. in the meantime consumer and business spending will bomb so businesses will start to cut costs... houses for sale will pile up and value will drop further if it happens too fast we are in trouble and the banks go with us.

Rbnz needs to get on top of it asap.

by Fluffybunny | 28th Jun 22, 10:17am 1656368243

Agree, and I don't see any of This as a bad thing. We can't live off our credit cards indefinatly and unless we accept the current system is broken, we need to have this reset.

by Zen20 | 27th Jun 22, 4:18pm 1656303485

The "big four" getting ready to pull the pin on the little fools across the ditch now that there's nothing but fool's gold left to extract?

by gnx | 27th Jun 22, 4:47pm 1656305262

Yip…. Another nail in the coffin.No more highly paid but low deposit youngsters to pay over the odds.

What do landlords do…. keep renting out the house and topping up the mortgage by larger amounts…. Or give 90 days notice to vacate and then try to sell? But that could take two, four, six months with no rent…. Yikes

And wait until people start to lose their jobs…and it’s not just the inconvenience and cost of seeing through a few tough months…but the small portfolio they have been supporting now can’t be topped up and it’s a whole house of cards.

this might( and I think it will) all get very unpleasant very quickly

The people who thought this was all a good idea should all be taken out and flogged

by OldSkoolEconomics | 28th Jun 22, 7:47am 1656359276

The overleveraged or recent borrowers, lenders, government all took the risk and they will all lose out now that it is collapsing.

I am not sure i have much sympathy for any to be honest. Plenty of people decided to forgo greed and lived relatively frugally and saved carefully (balanced and cqrefully managed investments rather than jumping on the investment property bandwagon) whilst asset prices boomed.. and are now sitting safely. And those who couldnt afford to take part will start to see a world where they have better and real options to get ahead.

by waymad | 28th Jun 22, 7:13am 1656357233

What sums it all up for me is the ANZ ad with the nice family, whose mortgage is perpetually stuck at $47,360. Debt slaves, but 'It's almost out the door'. A parable for our times....