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Banks may be back promoting high LVR mortgages from next month after adapting to 'brutal' change

Banks may be back promoting high LVR mortgages from next month after adapting to 'brutal' change

By Gareth Vaughan

Banks could be back openly marketing home loans to customers with less than a 20% deposit as soon as next month, says BNZ's director of retail banking Andy Symons.

Symons told in a Double Shot interview adapting to the Reserve Bank enforced restrictions on high loan-to-value ratio (LVR) residential mortgage lending has been a "brutal" change. However, he's confident BNZ will be within the Reserve Bank limit when measured for the first time at the end of the month.

Asked if, once they get through that, he thought banks may begin marketing high LVR mortgages again, Symons said he did.

"Yes I do. With the data the Reserve Bank puts out there is sometimes a difference between the volume done in any particular month and the average volumes the banks are looking to achieve over that first six month period. It is a function of the total lending that you do," said Symons.

"And as different banks have growth months or growth periods in the below 80% LVR book, they will create the capacity to do business in the above 80% LVR book."

"And there is a lot of awfully good quality above 80% LVR lending out there to be done. We need to be careful not to overly assume that above 80% LVR lending is poor quality lending. Because for a variety of reasons there are many people out there looking to borrow above 80% LVR. And they are good, safe deals and it is the right thing to do for the customer," said Symons.

In terms of BNZ's own position vis-a-vis the restrictions, he said the bank was tracking "very well."

"It has been a brutal change and there was not a lot of lead time to prepare for it. (But) I'm very pleased with the way it has been implemented and very comfortable that we will meet the Reserve Bank guidelines easily."

Symons' comments come after Fred Ohlsson, his counterpart at ANZ, told last week ANZ is approving high LVR residential mortgage lending valued in the millions of dollars every day, and is very confident of being within the Reserve Bank's "speed limit" when it's first measured.

The latest figures on banks' high LVR mortgage lending show they have capacity to increase it and remain within the Reserve Bank limits. High LVR lending comprised just 3.8% of new mortgage commitments in January, well below the Reserve Bank's 10% limit. That's down from above 25% as recently as last September. Banks will be tested for the first time at the end of March with the initial measure an average rate over a six month period.

The Reserve Bank introduced restrictions on banks' high LVR residential mortgages from October 1 last year. This means banks must restrict lending at LVRs above 80% (where borrowers don't have a deposit of at least 20%) to no more than 10% of total new mortgage lending. This 10% limit excludes high LVR loans made under Housing New Zealand’s Welcome Home Loans scheme, the refinancing of existing high LVR loans, bridging finance or the transfer of existing high LVR loans between properties, and new residential construction loans.

Announcing the introduction of the policy last August, Reserve Bank Governor Graeme Wheeler said allowing for the exemptions, the 10% speed limit will effectively limit banks’ high LVR lending flows to about 15% of their new residential lending. Both ASB's CEO Barbara Chapman and BNZ's CEO Andrew Thorburn have told they were surprised the limit was set as low as 10%.

In the video Symons also discusses BNZ's strategy for home loans and term deposits in the new rising interest rate environment, and mobile banking applications.

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This was inevitable , there are after all many young double income professional couples with enough income to service a 90% LTVR Mortgage.
For example ,many of these younger folk would not have the ability to save $120,000 in cash  for a $600,000 property while paying rent (whilst also  trying to save )   

The only housing markets that have ever collapsed have done so through over building and creating long lists of 'inventory' that they cant sell, hence prices drop and drop. 
Ireland, US, EU countries, all had over building.
We simply do not.  Although if prices in auckland continue the way they are, at the same time as large tracks of land get freed up for residential development, then we could see some price falls, but I just can not invision a situation where there are too many options, too many houses for sale.  P.N only has 300-odd properties for sale, which on a per capita basis is even more of a shortage than auckland.  The building industry in NZ simply does not have the scale (yet) to build enough everywhere at the same time... Might sort auckland and chch out, but the problem will rise elsewhere