Banks loosen up on low deposit lending - but not by much

Banks have loosened up lending a little but still remain well below the Reserve Bank's cap. Photo/Chris Loufte.

Bank have boosted their share of lending to low deposit home-owners but remain well below the Reserve Bank's newly adjusted cap.

From January 1 banks were allowed to lend up to 20 per cent of new lending to owner-occupiers with a deposit of less than 20 per cent.

That was increased from a cap of 15 per cent of new loans.

But figures for January release late yesterday show the share of lending to low deposit home-owners only rose from 9.8 per cent in December to 12.1 per cent, according to Reserve Bank data.

That figure takes into account exemptions which allow borrowing for new builds with a low deposit. Including the exemptions the share of low deposit lending rose from 14 per cent to 15.9 per cent.

Total new mortgage lending for January was $4.05 billion up from $3.7b in the January prior and $3.53b in January 2017.

Both lending on investment property and owner-occupied property rose in January compared to the prior January.

Commitments on investment property increased from $1.22b to $1.41b while lending to owner-occupiers rose from $2.48b to 2.64b.

Of that lending to owner-occupiers $421m went to those with low deposits compared to $244m in January 2018.

Kelvin Davidson, senior property economist at CoreLogic, said the number of loans done in January remained within the 20,000 to 25,000 per month range seen over the last 18 months to two years meaning the rise in value was driven by increases in the average size of each loan.

"This was $216,498 in January, up by 8.1 per cent from a year ago."

Davidson said while the increase in the share of lending to low-deposit home-owners was well-below the cap it was still a "stepshift in activity" for the banks.

"It remains to be seen whether this impetus to lending flows persists in the coming
months.

"After all, notwithstanding January's rise in high LVR [loan to value] activity, the banks themselves still seem to have a pretty cautious attitude, reinforced by the prospect
that the RBNZ is going to require them to hold more capital on their balance sheets
in future."

Davidson said the demand from borrowers was also restricted by the tough criteria banks were enforcing.

"There's not an unlimited pool of borrowers who can actually meet the strict lending criteria currently being enforced (such as stringent expense verification and also stress-testing the ability to pay at a theoretical mortgage rate of 7-8 per cent)."

Davidson said on top of that people were grappling with the recommendation for a capital gains tax on residential property which the Tax Working Group proposed last week.

"Overall, we'd anticipate more increases in mortgage lending in 2019, but the
growth is unlikely to be rampant."

Davidson said he wouldn't be surprised to see the share of owner-occupier lending at high loan to value ratios rise to about 15 per cent, then flatten off.