FMA says peer-to-peer loans could be used to help fund house purchases

FMA says peer-to-peer loans could be used to help fund house purchases

By Gareth Vaughan

A potential new path around the Reserve Bank's restrictions on low equity mortgage lending is about to be born.

The Financial Markets Authority (FMA) is expecting licence applications from about four entities hoping to run peer-to-peer lending services over the next couple of months. Licences granted by the FMA will enable these intermediaries to run websites matching borrowers with lenders and charge fees for doing so.

As Elaine Campbell, the FMA's head of compliance monitoring puts it; "It's a bit like an online dating service. Essentially what they are doing is introducing people wanting to lend money to people wanting to borrow money."

The principal purpose will be to match lenders with borrowers seeking loans for personal, charitable, or small business purposes.

However, Campbell told there was nothing stopping peer-to-peer lending services being used by people seeking to borrow money to help buy a house.

'In theory you as a potential borrower could go to the platform seeking a loan for a house, yes," Campbell says. "And provided there is disclosure around what you're seeking that loan for and what the risk of your ability to repay the loan might look like, if people want to lend you the money to buy the house, that's what the government policy, these platforms, are about."

Since October 1 last year the Reserve Bank has required trading banks to restrict new residential mortgage lending at loan-to-value ratios (LVRs) of more than 80%, where borrowers don't have equity or a deposit equivalent to at least 20% of the house purchase price, to no more than 10% of the dollar value of their new housing lending flows.

Announcing the policy last August, Governor Graeme Wheeler said the Reserve Bank was concerned about the rate house prices were increasing and the potential risk this posed to the financial system and the broader economy. At the time concerns were raised that, the longer the policy is in place, the more people are likely to try and find ways around the LVR restrictions, with some suggesting old tricks from the past would be resurrected.

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Can already get a 'car loan' for a car that can then be sold and money used for deposit.
Can already max out Q-card, Gem card ($15-25k no worries) on expensive items that can then be sold in new condition and money used for deposit to get over the 20% freshhold.
Or my favourite; Seller of house gifts 20k to buyer and increases purchase price by 20k to enable buyer to get over the 20% freshhold
The risk remains, and is infact greater as mostly hidden from the bank, but the rules and the rbnz are happy so that's the main thing....

The banks are actually showing a lot more due diligence. They expect to see evidence of genuine savings in bank statements over at least six months. Any large sums deposited from a third party must be documented as gifts not to be repaid. Borrowed money, from any source, cannot be easily used as a deposit.

Any fool who employs these methods to overpay for a house......DEPOSIT.
A. needs their head read,
B. Their palm read
C. And a big red sticker on their fore-head, saying already in the RED.
"Do not touch with a barge pole".

Today's fools are tomorrow's mortgagee sales.
If they can't save a decent deposit how can they expect to handle 8% interest rates?

The emotional aspect of seeing prices rise and rise in particular the fear of 'missing out' after seeing your peers house they brought last year going up and up in value... I'd bet on human nature once again being the dominant factor

The pump and dump continues.
Are you "missing out"  there ...too.

For some reason the 'breaking news' banner isn't displaying correctly for me.. Can you guys please let me know what it says? 
I agree with you though, I wouldn't buy without at least 20% deposit.  Although I wouldn't buy a property that wasn't returning at least 7% yield minimum either so am not buying auckland property while it is so detached from fundamentals. 
But understanding how other buyers think is very important and is what's stopped me selling a year or 2 ago, and looking at secondary cities with rational house prices and strong export income growth (dairy centric cities such as New plymouth, Palmerston North, both also have lower listings per capita than auckland region)

does it matter.
the bank has a mortgage for loan, interest and costs to say 80% lvr of a full value. - further may have lmi.
formally no knowledge of other lending/loans/arrangements
in stressed situation whats left for the peer lender?
RBNZ/govt does not support/aid peer lenders
lvr regs were to control the banks, not the borrowers, nor shadow/peer lenders.
re Auckland still the pyschology of the borrowers on display (aided by the industry professionals who know a good thing when they see it).

I will never get involved in direct lending , peer to peer or whatever you call this smelly carcass.
1) You cannot secure a First Mortgage to protect your loan  , so the debt is like all the Finance Company loans , worthless when things go pear shaped , and I promise you .. pear shaped they will go
2) You would need to obtain some other form of security , and I dont know if Persoanl Gaurentees will cut it either
3) The interest rate paid must be the risk adjusted rate , so if Gilts are 3% , Bank deposits 4-5%, the loan should be around  15%  
At this rate the money is just too expensive for the borrower and the default risk too high for the lender ,  it becomes like loan sharking