NZ banks already clamping down on low deposit mortgages ahead of RBNZ speed limit; Brokers say approval times blow out; approval growth slumps from 17% to 3% in 8 weeks

By Bernard Hickey

Brokers report banks have already clamped down hard on low deposit mortgages ahead of the expected introduction of speed limits on the growth of such mortgages by the Reserve Bank of New Zealand.

Reserve Bank figures released this week show the value of mortgage approvals in the 13 weeks to July 12 was up just 3.2% from the same period a year earlier. This was down sharply from the annualised growth seen in the 13 weeks before May 10 of 16.9%.

"Banks have certainly toughened their decision making in recent weeks as they prepare for the Reserve Bank's restrictions," said Roost Mortgage Brokers spokeswoman Colleen Dennehy.

Roost brokers had already seen some banks tighten their rules around credit criteria for loans with a loan to value ratio (LVR) of higher than 80% in the last six to eight weeks, Dennehy said. This meant borrowers with short term debts were not being approved or low equity premiums were not being waived.

Hot competition between the banks around the merger of ANZ and National starting in the middle of 2012 and into early 2013 had seen low equity premiums of between 0.5% to 0.7% for mortgages with LVRs of over 80% being waived to win market share, particularly in the bracket between 80-85%. Low equity premiums over 85% had also been waived for some customers, along with legal fees, brokers said.

Banks started applying low equity premiums for 80-85% lending in June and early July, brokers said.

"That's disappeared now," Squirrel Mortgages Principal John Bolton said of the low equity premium waivers.

"The banks aren't competing that aggressively with each other above 80%," he said. "They have been tightening up their criteria for while."

Brokers said the tightening began in late May and throughout June as the comments from the Reserve Bank about a 'speed limit' on high LVR mortgage growth became tougher. The Government and the Reserve Bank announced a memorandum of understanding for using so-called macro-prudential tools, including a high LVR speed limit, on May 16.

Reserve Bank Governor Graeme Wheeler said in the bank's June 13 Monetary Policy Statement news conference the bank had been talking with the boards and managements of local banks to encourage them to slow the growth of such lending and tighten up on lending criteria. Deputy Governor Grant Spencer gave a tough speech laying the groundwork for a speed limit on June 27, including an insistence the bank would not allow exemptions for first home buyers.

Brokers said this period of relatively uncertainty had slowed down the processing times for mortgage applications. Both Roost and Squirrel said application approval times had increased substantially in recent weeks, particularly in the busier markets of Auckland and Christchurch. 

Bolton said approval times had increased from around 2 days on average to around 4 days. 

Brokers said the arrival of seasonally slower winter period was also factor in the slowdown, along with a growing wariness by home buyers of a lack of listings and a higher prices.

"We've got a lot of home buyers who are starting to give up because of a lack of supply and the crazy prices," Bolton said.

Auckland's house prices rose 19.8% in the year to June, according to the REINZ's Stratified Price Index for Auckland. Listings figures from Realestate.co.nz show listings in Auckland and Christchurch had slumped to all-time lows.