KEY POINTS:
The impact of the credit crunch is pushing further into the New Zealand banking scene, with ASB bank dropping its 'low- doc' and 80 per cent plus loans in new credit rationing move.
Sold through ASB's broker lending division Sovereign Home Loans, the move is a yet another sign that the big Australian banks are tightening credit criteria to deal with sharply higher overseas funding costs and frozen international credit markets.
Low doc loans allow customers to self-certify their income levels rather than supplying proof of what they make while high LVR loans are made with little or no deposit.
Some estimates put the amount of low doc loans to as little as 2 per cent of all NZ mortgage debt.
The banks say these loans are not necessarily low quality, as they tend to be
extended to tradespeople and contractors who did not have regular income, while the high LVR loans were often made to borrowers with significant assets.
"These changes have been necessitated by the turbulence prevailing in overseas markets, as well as the subsequent inflation in the cost of funds," Sovereign said in a note to brokers late on Thursday.
"Given the significant developments this week in international financial markets, Sovereign is implementing further changes," it said, adding the changes applied from 5pm yesterday.
"From today, all low-doc lending is discontinued and lending limits will now be up to a maximum 80 per cent LVR for all other products," it said.
Sovereign's move follow a significant tightening of its 'Low Doc' and high loan to value (LVR) criteria last week and a previous one last month.
It follows the withdrawal of Asteron from home lending yesterday and the decision last week by GE Money Home loans to pull its 2 and 3 year fixed mortgages.
Interest.co.nz
