A leading bank has revoked its decision to clamp down on investor lending for new builds, saying it will now accept applications for lower equity loans.
It comes after the Reserve Bank confirmed loan-to-value ratio (LVR) requirements for banks would return to pre-COVID levels from March 1. The rules mean most property investors applying for loans will be required to have at least 30 percent equity (deposit), increasing to 40 percent from May 1. For most owner-occupiers, a minimum of 20 percent equity is required.
But borrowing to buy a new home is one of the exemptions to the LVR rules.
In a move to support first-home buyers, in November ASB introduced a minimum deposit requirement of 30 percent for property investors. Earlier this month, in response to high demand, requirements were increased to 40 percent.
On Wednesday, mortgage brokers told NZ Herald that unless investors had at least 40 percent equity, ASB was declining home loan applications for new builds.
But late on Wednesday afternoon, the bank confirmed it had revoked that decision, explaining it was trying to strike a balance between managing demand and encouraging housing supply.
"We acknowledge that in trying to do the right thing for Kiwis, and for first home buyers in particular, we may not have got the balance quite right," ASB executive general manager retail banking Craig Sims said.
"We have made a move today to enable lending of greater than 60 percent LVR for new build investment properties, under the RBNZ exemption criteria."
Kiwibank, ANZ and BNZ also confirmed as per the Reserve Bank exemption (subject to bank lending criteria), they can lend over 60 percent to investors for new builds.
Property investment mentor and mortgage broker Lucia Xiao said although new builds were exempt from LVR rules, lenders can use their own measurements.
John Bolton, CEO at mortgage broker Squirrel said it's sensible for new build borrowing to be excluded from LVR rules. But he's concerned first-home buyers will still be competing with investors.
"Other than in the Kiwibuild space which is much more focused on affordable first homes, even in that space you'll end up with competition...you don't want investors buying up all of the entry-level new builds and crowding out first home buyers in this space as well," Bolton said.
Ahead of LVR rules coming back in from March 1, ASB said it would honour existing home loan pre-approvals already in-place, except conditionally-approved loans or approved loans subject to the change at rollover.
"There has been no change to owner-occupied lending and there is no requirement to settle the property purchase before March 1/May 1 to get final approval," Sims added.
A Kiwibank spokeswoman said existing home loan pre-approvals would be honoured as long as property transactions settle before either March 1 or May 1.
"Kiwibank teams are working with customers to make sure they are aware of these new requirements.
"By enabling more new builds/construction loans, Kiwibank is supporting more New Zealanders into homes as well as adding to our housing stock," the spokeswoman said.
ANZ spokesman Stefan Herrick said the bank honoured existing home loan pre-approvals for a period of 90 days.
"We're honouring our 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," Herrick said.
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.
Westpac said the bank was still working with the Reserve Bank to clarify the new rules.
"We’re constantly reviewing our policies to ensure we lend consistently and responsibly to our customers, however we have nothing to announce at this stage," a spokesperson said.
The changes to LVR restrictions:
From March 1, 2021
- LVR restrictions for owner-occupiers will be reinstated to a maximum of 20 percent of new lending at LVRs above 80 percent.
- LVR restrictions for investors will be reinstated to a maximum of 5 percent of new lending at LVRs above 70 percent.
From May 1, 2021
- LVR restrictions for owner-occupiers will remain at a maximum of 20 percent of new lending at LVRs above 80 percent.
- LVR restrictions for investors will be further raised to a maximum of 5 percent of new lending at LVRs above 60 percent.
A loan-to-value ratio (LVR) is a measure of how much a bank lends against mortgaged property, compared to its value.
In response to COVID-19, LVR restrictions were temporarily removed for 12 months. From March, LVR restrictions will be reinstated at the same level as they were prior to COVID-19, with a further tightening of investors’ restrictions taking effect from May 1.