Mortgage restrictions loosened in NZ

The Reserve Bank of New Zealand (RBNZ) recently said it will wind back lending curbs in January as risks to the nation’s financial system have eased in the past six months with the help of macro-prudential measures introduced five years ago.

RNBZ governor Adrian Orr said: “Both mortgage credit growth and house price inflation have eased to more sustainable rates, reducing the riskiness of banks’ new housing lending. In response, we are easing our LVR restrictions on banks’ new mortgage loans.

“If banks’ lending standards are maintained, we expect to further ease LVR restrictions over the next few years.”

From 1 January 2019, banks will be allowed to lend 20 per cent of their new mortgages to owner-occupiers with a deposit of less than 20 per cent. This is a lift from the current cap of 15 per cent, which was introduced in 2013.

They will also be able to lend 5 per cent of their new loans to investors with a deposit of less than 30 per cent, which is down from the 35 per cent limit.

The CEO of the Real Estate Institute of New Zealand (REINZ), Bindi Norwell, welcomed the loosening of lending restrictions, saying that it could make it easier for first home buyers to get their foot into the property market, as well as encourage investors to think twice about exiting the market due to legislative burdens, subsequently helping support the continued supply of rental properties in the country.

However, as there is heightened awareness of responsible lending obligations, with New Zealanders observing the Australian financial services royal commission unfold from across the ditch, it is unclear whether easing LVR restrictions will improve the risk appetite of the nation’s lenders, especially as two of the big four banks (ANZ and Westpac) are Australian and have endured significant scrutiny throughout the year.

Auckland-based Loan Market broker Bruce Patten told Mortgage Business’ sister title The Adviser that the after-effects of the royal commission has crossed the Tasman, in that when ANZ and Westpac make a credit policy or other change, the other two of the big four, ASP Bank and the Bank of New Zealand (BNZ), tend to follow suit.

Hike in capital requirements

The RBNZ is also consulting on a proposal to nearly double the required amount that tier one capital banks will have to hold, from the current 8.5 per cent to 16 per cent.

Geoff Bascand, RBNZ deputy governor and general manager of financial stability, said: “Insisting that bank shareholders have a meaningful stake in their bank provides a greater incentive to ensure it is well managed. Having shareholders able to absorb a greater share of losses if the company fails also provides stronger protection for depositors.”

This would mean that ANZ needs to hold an additional NZ$6 billion to NZ$8 billion in capital, BNZ an extra NZ$4 billion to NZ$5 billion, and Westpac a further NZ$2 billion.

The Australian Prudential Regulation Authority is similarly proposing to lift total capital requirements of the big four banks by 4 to 5 basis points of risk-weighted assets, representing around $17 billion to $21 billion of total capital, which will be absorbed incrementally over a four-year period from 2019 to 2023.

For other ADIs, APRA suggested that a small adjustment might be required depending on the outcomes of resolution planning, though it is unlikely.

[Related: Analysis: How LVR limits helped de-risk the NZ mortgage market]