Westpac touts potential of shared home ownership schemes, but won’t commit to easing its lending practises

Westpac has financed around 550 shared equity and leasehold purchases since the start of 2022. Photo / Sylvie Whinray

Westpac is advertising its commitment to lending to those involved in various schemes aimed at helping people into a home.

However, the bank is stopping short of pledging to take on more risk, or lowering the interest rates it offers those who don’t take the cookie-cutter approach to buying a home.

Westpac has released a report it commissioned from Deloitte that concludes there is scope for shared equity, leasehold, or rent-to-buy arrangements to be used more in New Zealand to support aspiring homeowners. Westpac has financed about 550 shared equity and leasehold purchases since the start of 2022.

The report identified several barriers preventing the uptake of shared-ownership arrangements, including banks’ risk aversion when it came to lending to community housing providers (such as charitable trusts and iwi) that could team up with people to help them buy a home.

Community housing providers told Deloitte their non-profit status meant getting bank loans often required “protracted negotiation - if banks were, in fact, willing to lend at all”.

They said banks handled them inconsistently, with some treating them like commercial property investors, offering relatively high interest rates, and others treating them like residential property investors, offering lower rates.

Speaking to the Herald, Westpac NZ chief executive Catherine McGrath assured Westpac already considered community housing providers as lower risk than commercial property developers.

She said the bank assessed loan applications on a case-by-case basis, but was exploring whether it could “further optimise and standardise credit risk settings” to make it easier for those involved in shared ownership schemes to get loans.

Westpac said it could work with other banks and the Government on “potentially developing an agreed set of standards for the treatment of social infrastructure”.

Asked why she wanted to collaborate, rather than simply capitalise on what Westpac deemed to be a market with potential to grow, McGrath said it was important there was competition among banks in this space.

Furthermore, she believed it would be good for New Zealand if banks better supported a broader range of pathways to home ownership.

Deloitte expected the homeownership rate to drop below 50% within the next 25 years. Currently, fewer than 60% of New Zealand households live in their own homes, compared to almost 75% in 1991.

McGrath did not believe the Reserve Bank’s (RBNZ) regulation of banks, including its capital rules and loan-to-value ratio (LVR) restrictions, limited banks’ abilities to lend to those involved in shared home ownership schemes.

Westpac’s advertisement of its commitment to lending to community housing providers is timely.

The Government wants to lean more heavily on community housing providers to build or buy houses that can effectively be used as state houses.

However, a review of Kāinga Ora Homes and Communities, which the Government commissioned Sir Bill English to lead, in March found banks were ill-equipped to lend to community housing providers.

The reviewers believed banks often classified community housing providers as “corporate” borrowers, despite them posing similar risks to “residential” borrowers.

They said banks did not recognise the fact the rental income received by community housing providers was effectively Government guaranteed.

On the flip side, the reviewers recognised the Government could remove clauses from its contracts with community housing providers that enable it to terminate the contract at its convenience. This would give community housing providers and their financiers more cashflow certainty.

McGrath said it was a coincidence Westpac was considering ways to better work with community housing providers, as the Government was looking to rely more on the sector.

Westpac chief executive Catherine McGrath commits to supporting community housing providers.

She recognised Westpac’s ability to support community housing providers would be influenced by government policy.

The Government is currently reviewing the future of a number of its housing programmes, including Kāinga Ora’s First Home Partner scheme – a shared equity scheme that has helped nearly 1200 into their first home since its inception in 2022.

The scheme is currently over-subscribed and not accepting new applications.

McGrath said the bank would target lending $1 billion over three years to community housing providers (to provide rentals or get involved in shared ownership schemes), people who buy a home through a shared ownership model, and people with small deposits, who use the Government’s First Home Loan scheme.

Westpac couldn’t quantify how much it lent to this cohort over the past three years to contextualise its billion-dollar goal.

New Zealand banks collectively issued $45b of new mortgages to first-home buyers in the three years to May, according to RBNZ data.

They issued another $34b of business loans for commercial property (including for property development).

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in Government and Reserve Bank policymaking, economics and banking.