27 Mar 2014

Banks cautious on low-deposit lending

8:00 am on 27 March 2014

Banks are lending far less than they are allowed to in mortgages to people with small deposits.

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Latest figures from the Reserve Bank show the banks made new commitments to lend on mortgages totalling $3.86 billion in February - but only 4.2 percent of that new lending was to people with a deposit of less than 20 percent.

That is up from 3.8 percent in January but still well short of the 10 percent the banks are allowed to lend in this category under the bank's rule, which came into force last October.

Those involved in the industry, such as real estate agents, mortgage brokers and banks, say it is would-be first home buyers who are most affected.

The Reserve Bank has made complying with the new rule a condition of banks keeping their banking licences.

Deutsche Bank economist Darren Gibbs says banks don't want to put their banking licences at risk which is why they are being so conservative about lending to people with small deposits.

Deutsche Bank does not lend on mortgages in New Zealand.

Further comment

Bankers Association chief executive Kirk Hope said it was always expected that during the six month compliance period for banks, which ends this month, the LVR rate would be around 5 percent.

Mr Hope said people thinking about taking out a mortgage should talk to their banks about their circumstances, even if they do not have the full 20 percent deposit.

Loan Market director Bruce Patten said a figure of 4.2 percent does mean there is more low deposit lending than late last year.

"At the end of the day, the banks have adjusted their servicing capability criteria to exclude more people.

"That means people in a lesser financial position, are getting hurt the most by this," Mr Patten said.

Auckland mortgage broker Geoff Bawden said there has also been a drop in the number of people applying for mortgages.

"The immediate effect for first home buyers was that they they just shut up shop and stopped looking.

"A lot said they don't have the wherewithal to come up with a 20 percent deposit, and there doesn't seem to be much of a chance of getting a low equity loan, so there's not much point looking," he said.