Home-lending restrictions to ease from January

Easing home lending restrictions will not result in banks throwing the doors open to new lending, a mortgage broker has warned.

The Reserve Bank this morning revealed it would pull back on bank lending restrictions from January next year for both owner occupiers and investors.

Banks will be allowed to lend 20 per cent of their new loans to owner-occupiers with a deposit of less than 20 per cent.

That is up from the current level of 15 per cent.

While banks will be able to lend 5 per cent of their new loans to investors with a deposit of less than 30 per cent. Currently, that is 35 per cent.

Mark Collins, chief executive of Mike Pero Mortgages, welcomed the easing and said it would it help first home buyers but predicted it would not see banks throw open the doors to lending.

"Just because they have eased the door open does not mean banks will open their doors again. It will depend on their credit and risk appetite."

Collins said banks were under a lot of pressure around responsible lending which meant they had to behave appropriately.

That meant any lending over the 80 per cent loan to value ratio was stress-tested pretty hard, he said.

Stress-testing is where banks test a person's ability to pay a mortgage on a higher interest rate than the advertised rate - typically around 7 or 8 per cent.

Collins said even a 10 per cent deposit on a house in Auckland required a lot of saving as banks did not accept deposit gifts for higher risk lending.

And he warned home buyers to be wary of low equity fees and charges that came with having a small deposit.

"While it's a great move. It is probably not going to make as big a difference as it might sound."

In terms of the change for investors Collins described it has a "rounding error" designed to help banks keep inside the restrictions.

He said the LVR restrictions combined with a tightening of the bright line test and tenancy changes had seen investors drop out of the market.

Kelvin Davidson, a senior research analyst at property data firm CoreLogic said the change may provide a kick-start to sale volumes provided more borrowers could secure loans, but it was not a guaranteed outcome.

"Despite the Reserve Bank's loosening of LVR limits, an increase in lending is not a clear-cut outcome.

"After all, lenders may choose to continue on their cautious path, especially since today's Financial Stability Report also highlighted the RBNZ's view that 'higher capital requirements are necessary, so that the banking system can be sufficiently resilient whilst remaining efficient'.

Davidson said a requirement in future for the banks to hold higher capital buffers would tend to dampen lending flows.

Reserve Bank governor Adrian Orr said risks to New Zealand's financial system had eased over the past six months but vulnerabilities remained.

"In particular, households remain exposed to financial shocks due to their large mortgage debt burden."

But he said both mortgage credit growth and house price inflation had eased to more sustainable rates reducing the riskiness of new house lending.

"In response, we are easing our loan-to-value ratio (LVR) restrictions on banks' new mortgage loans."

Orr said if banks' lending standards were maintained he expected to further ease LVR [loan to value] restrictions over the next few years.

But Collins said even if the restrictions were lifted the banks may continue to remain cautious.

Bindi Norwell, chief executive of the Real Estate Institute of New Zealand, had hoped the Reserve Bank would drop the minimum deposit level for owner-occupiers from 20 per cent to 15 per cent across the board.

But she said she was not surprised that it had chosen not to do this as New Zealand's two-tier market would be causing the Reserve Bank some concern.

"With house prices stabilising in Auckland for 19 months now, REINZ has been advocating for an easing of LVRs for first time buyers.

"However, with house prices continuing to rise and reaching record median prices in a number of regions we're not surprised that the Reserve Bank has chosen to leave LVRs for owner occupiers as they are for now."

But she said the easing should mean there was a chance for more first time buyers to have access to lending that they haven't previously had.

"We continually hear feedback from real estate agents around the country that with median prices rising to record levels in the regions that first time buyers are just finding it too difficult save that deposit to purchase their first home and to get into the property market.

"Any window of opportunity for young couples to get a foot on the property market is to be welcomed."

She said the changes to the investor limits may also go some way to supporting the supply of rental properties across New Zealand.

The Reserve Bank introduced high loan to value restrictions in October 2013 to cool the property market.

They were meant to be a temporary measure and have been tweaked on a number of occasions since their start.

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At the start of this year the restrictions were changed to allow banks to lend up to 15 per cent of new loans to owner-occupiers to those with a deposit of less than 20 per cent.

While up to 5 per cent of lending to investors is allowable to those with a deposit of less than 35 per cent

The changes have seen first home purchases grow percentage wise while investor purchases have dropped.

Banks face losing their license to operate if they don't stick to the restrictions - a consequence which has meant most lend well under the restrictions.