By Paul McBeth
Westpac is cutting interest-only lending terms to a maximum of five years, in a market where investors are the driving force.
Interest-only loans are often used by property investors who meet the interest repayments and leave the principal untouched on the expectation they can pocket a capital gain on the sale of a house.
Westpac New Zealand has previously allowed terms of up to 15 years but has cut that by two-thirds in the latest response to a build-up of property investor activity, which now accounts for about 40 percent of all new lending.
There are two elements to the move: making sure the bank's lending and risk profile reflected what was happening in the market, and giving borrowers a chance to check their repayment plans, says Westpac's Simon Power.
"There's a risk lens, but there's also a customer obligation lens in making sure people are comfortable with their own capacity," Mr Power told BusinessDesk. "We're looking to make sure the settings are right."
Property investors have come under scrutiny in recent months as the primary drivers of accelerating house prices taking advantage of historically low interest rates.
Westpac was one of several banks which stopped lending to non-resident borrowers with overseas income last month, and the Bankers' Association last week said lenders were already responding to signals in the market and from the Reserve Bank.
Reserve Bank figures show interest-only mortgages accounted for about 41 percent of all new lending in May, up from 38 per cent in January when it first started collecting the data.
Of existing home loans, interest-only mortgages account for 28 percent of the $213.7b total loans.
Mr Power said the residential lending market was still very competitive, and while it wasn't showing signs of a deterioration, "we've got to be prudent".
Westpac New Zealand's $43.5b residential loan book is about 20 percent of the total market.