There is already evidence that home buyers are looking to circumvent Reserve Bank "speed limits" on low equity mortgages and increasing their debt burdens an Auckland mortgage broker says.
The head of North Shore-based LoanPlan Christine Lockie said banks had already started restricting low equity mortgages ahead of the October 1 deadline, with a combination of interest rate and low equity fee increases, coupled to a halt on low equity pre-approvals - but buyers were determined to forge ahead regardless. See here for articles about LVRs.
"If people want something, they want it and neither the government or the Reserve Bank is going to stop them getting at it. This is an experiment by the powers-that-be and it will go badly – we're already seeing evidence of this," she said.
"In effect, all the Reserve Bank is doing is making our market more accessible to overseas buyers, shutting out poorer Kiwis and increasing consumer debt. I am seeing parents are taking on more risk to offer equity as collateral security for their children, or raising their own debt levels to provide deposits."
Lockie said other options people were exploring included second mortgage funding and private funding - which was available for mortgages at 90%-plus.
"Of course all these options are higher risk, more expensive and achieving nothing but more debt."
Lockie said banks were already not offering the same discounts, refusing pre-approvals above 80% and/or increasing low equity fees. Some recent examples included ANZ increasing its low equity fees to up to two per cent of the loan amount, and Westpac has raised interest rate margins for lending above 80%.
"Banks were using external insurers, but have now started self insuring – even Kiwibank. They have also chopped broker discounts in this area. In other words, they are covering the cost of insurance themselves, but charging the client for it. Will this be an alternate source of revenue for the banks?
"Despite the low equity lending restrictions which we are seeing implemented before time – partly because there are already so many pre-approvals over 80 per cent out there – houses in Auckland continue to fetch outlandish prices.
"For some commentators to say that overseas buyers are not contributing to high prices and the fierce housing competition is naive - we're on the ground and we see evidence of it every single day. The trouble is the origin of the buyer is not reflected in records or in sale-and-purchase agreements."
Lockie urged buyers to seek impartial financial advice from an experienced adviser before making decisions which could come back to bite them.
"The restrictions are going to make finance a lot more expensive, some people are going to make a lot of money and consumer debt will increase," Lockie said.
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