Banks let their belts out a little in the past month and increased the portion of high loan-to-value mortgage commitments for the first time since 'speed limits' were introduced on LVRs by the Reserve Bank in October.
Figures for February from the RBNZ showed that after excluding loans exempted from the LVR limits, the banks' share of high LVR lending rose to 4.2% in the month from just 3.8% in January. Previously, since October, the percentages had plummeted as banks retreated en masse from high-LVR commitments. But more recently some big banks have suggested there is now scope for them to start resuming some LVR lending.
The banks had $200 million worth of new commitments in February that were classified as high LVR loans, up from just $147 million the month previously. Before exemptions, the portion of high LVR loans in the latest month was 5.2%, up from 4.8% in January. Total new mortgage commitments by banks in the month were $3.863 billion.
Some crunching of the numbers says that for the five months to February, total new bank commitments were $20.382 billion, of which $1.481 billion were high-LVR loans, with $225 million worth of these applying for exemptions.
Based on the new figures, during that five month period bank's total share of high-LVR lending was running at 7.26% before exemptions and just 6.16% after exemptions. Add in the fact that the final percentage figures will be lower once the new build exemption is added and it can be seen that the banks have been taking no chances that they will come anything close to bumping against the 10% 'speed limit' ceiling once the first calculation of the ratios is carried out after the end of this month.
As of October 1, according to the new Reserve Bank rules, all banks were limited to committing no more than 10% of their new lending to mortgages exceeding 80% of the value of the property being bought.
The latest figure of 4.2% of high-LVR lending compares with over 25% in September, the last month before the speed limit took effect.
And the latest figures compared with a high-LVR portion of lending of 12.7% (before exemptions) and 11.7% (after exemptions) for October.
The figures as of yet do not include the more recently announced exemption on new builds, which is being applied retrospectively to October 1. Therefore it can be expected that the current LVR figures being produced by the banks will ultimately show even smaller percentages of high LVR loans once the new build exemptions are retrospectively incorporated.
When the RBNZ announced last August that it was introducing the LVR speed limit from October 1, this was in response to figures showing that some banks were rapidly increasing the proportion of high-LVR lending on new commitments.
The RBNZ was concerned about a potential risk to financial stability that could occur from a sudden shock to the housing market.
First home buyers are those seen as most effected by the LVR restrictions. The Government was known to have wanted to have first-time buyer exempted, but the RBNZ was not keen on exemptions. However, it subsequently relented on exemptions for new builds.
Exempted lending categories include lending made under Housing New Zealand’s Welcome Home Loans scheme, refinancing of an existing high-LVR loan, bridging finance or the ‘porting’ of a high-LVR loan between properties.
The RBNZ has been consulting with banks on the new builds exemption, with submissions on this having closed on February 14. Once the consultation process is complete then the figures from the banks will included loans affected by the new builds exemption.
The RBNZ says that banks’ compliance with the high-LVR speed limit will initially be measured against the average high-LVR share after exemptions figures taken from October 1, 2013 to March 31, 2014. Thereafter, it will be measured against the 3-month rolling average for the larger banks (ANZ, ASB, BNZ, Kiwibank and Westpac) and the 6-month rolling average for the smaller banks.