A major bank has stopped home lending to investors for new builds unless they have at least 40 per cent equity - that's despite new builds being exempt from lending restrictions.
Last Tuesday the Reserve Bank confirmed it would bring back loan-to-value ratios for banks with most investors required to have at least 30 per cent equity by March 1 and 40 per cent by May 1.
But it also said it expected mortgage lenders to "respect the 60/5 investor restrictions immediately with all new loan approvals, to ensure that their mortgage lending is consistent with our policy decision."
Mortgage brokers have told the Herald that ASB is declining loan applications for new builds if investors do not have at least 40 per cent equity.
ASB executive general manager retail banking Craig Sims said it would lend to a maximum LVR of 60 per cent for investment property.
"We are concerned the continued high levels of investor demand are unsustainable and we are focused on ensuring a balanced and sustainable housing market, which is in the best interests of all New Zealanders."
Sims said ASB continued to allow lending over 80 per cent LVR to qualifying owner-occupiers for construction purposes.
The Reserve Bank LVR rules specify that new builds are exempt for all borrowers including investors.
According to Reserve Bank documentation this exemption is designed support an increase in the supply of housing - an important part of reducing house price pressures arising from supply shortages (particularly in Auckland).
"Reducing such pressures helps to reduce systemic risk in the banking system associated
with any future house price correction."
Karen Tatterson, a mortgage broker with Loan Market said she had applied to the ASB for a loan on behalf of an investor who had bought land and wanted to build but was told the bank was not taking applications from investors for loans under the 60 per cent loan-to-value ratio.
"I went 'hang on, here is the Reserve Bank document saying new builds are exempt' and they said regardless of that they are not going to do investor new-builds under 60 per cent LVR."
Fortunately she was able to rework the application to get it over the line.
John Bolton, managing director of Squirrel Mortgages, said ASB was the only one he was aware of at the moment that was not letting investors get new build loans under the 60 per cent LVR.
"They are not allowing for the new build exemption."
He said the move seemed to be counter to what everyone was trying to do to encourage more housing supply.
But Bolton said banks were able to make their own credit rules. "So if they don't want do that they don't have to."
There has also been a divergence in how banks are handling pre-approvals for investors.
A spokeswoman for ANZ, the country's largest bank, said it would be honouring all pre-approvals.
"They last for a period of 90 days so the obligation is on the customer to find a property and commit to any lending, noting the actual settlement might be beyond this date."
But a Kiwibank spokeswoman said while its pre-approvals would be honoured the property transactions had to settle before either the March 1 or May 1 change to meet the LVR requirements.
"Kiwibank teams are working with customers to make sure they are aware of these new requirements."
A BNZ spokesman said a small number of investors may have recent pre-approvals which could extend beyond the time when the new restrictions come into force.
"If required, we will work with those customers to discuss their options."
A Westpac spokesman said it was still working with the Reserve Bank to clarify details of the new rules, to determine any disruption to pre-approved lending applications.
Sims said its pre-approvals were unaffected because it had already moved to a 40 per cent loan-to-value requirement for investors.
"This change applies to all home loan applications - except conditionally or fully approved loans, which are subject to the change at rollover/expiry. There has been no change to owner-occupied lending and there is no requirement to settle the property purchase before March 1/May to get final approval."
Tatterson said the different approaches made it really difficult for mortgage brokers who were trying to give advice to clients.
"You kind of push the button and shut your eyes and cross your fingers and hope like hell it is going to go through really.
"It is hard because, at the end of the day, we are trying to do the right thing by our clients and yet we are not sure what outcome we are going to get which makes it really frustrating."
Bolton said some banks were taking a tougher approach than others.
"Some of the banks have just basically said anything that is not already approved, even if you have submitted it before the changes - tough - and for the banks that are really slow on turnarounds at the moment that is a bit rough."
He said he had some situations with one or two of the banks where loan applications that had been in for about 10 days were being turned down.
Bolton said those deals then either fell over or had to be reworked.
He said the changes didn't just affect investors as the hot property market meant many people were buying before they had sold.
"The problem is if you are wanting to change your house you can't buy subject to the sale of your house, you have basically got to take the plunge. People pretty much need to buy first and then sell because you don't want to sell and not find anything."
He said a lot of people wanted to buy first and then if they could not sell their property they had the option to convert it into a rental but the LVRs made that harder.
"Now I can't because there is no way I can keep 40 per cent equity in my other house to keep it as a rental. So the idea of bridging has dramatically changed in the last three or four weeks."
He said it had frozen the market up a little bit because it made it harder for people to buy as they had to sell first and then brave it in finding something.
"It is an unintended consequence of the LVR restriction but it does impact on customers trying to transact in this market."