Third major bank curtails mortgage lending to those with small deposits

Banks come close to exhausting their Reserve Bank-imposed high-risk lending allowances. Photo / Getty Images

Westpac is limiting the availability of new mortgage pre-approvals for borrowers with deposits of less than 20 per cent.

It is making the move following ANZ and ASB temporarily halting new mortgage lending to borrowers with deposits of less than 20 per cent.

All three banks acknowledge they're coming up against the limits the Reserve Bank of New Zealand (RBNZ) has imposed on the amount of high-risk lending they're allowed to do.

The RBNZ's loan-to-value ratio (LVR) rules require banks to ensure no more than 10 per cent of their new mortgage lending to owner-occupiers goes to borrowers with deposits of less than 20 per cent.

Borrowers who require loans for new builds or non-routine repairs, need bridging finance, want to shift loans from one property to another, need to refinance existing loans, and require loans under the Housing New Zealand Mortgage insurance scheme, are exempt from the rules.

It is unknown exactly how close ANZ, ASB and Westpac are to exhausting their high-risk, or high-LVR, lending allowances.

But last month, 7.7 per cent of banks' collective new mortgage lending to owner-occupiers went to borrowers with deposits of less than 20 per cent, according to just-released RBNZ data.

This was higher than in the four months prior. For example, in March, only 3 per cent of new owner-occupier lending went to borrowers with small deposits.

Banks had to tighten credit conditions relatively quickly earlier in the year, as the RBNZ on November 1 halved their high-LVR lending allowances from 20 per cent to 10 per cent.

However, the data shows banks started lending more generously to higher-risk borrowers in May.

And now, three of the country's largest banks are either restricting (Westpac) or halting (ANZ and ASB) new high-LVR lending.

A Westpac spokesperson explained, "Existing pre-approvals and applications that have already been received will not be affected by the changes.

"Additionally, new applications for existing Westpac customers seeking high-LVR lending will still be eligible for lending if they present a signed sales and purchase agreement when applying for finance. This means these applicants will not be able to buy unconditionally, ie at auction, based on a pre-approval.

"Other options that are still available for all first home buyers with less than a 20 per cent deposit include Westpac Family Springboard, Kāinga Ora First Home Loans and Kāinga Ora First Home Partner."

An ASB spokesperson explained, "We're continuing to document loans for customers currently in our pipeline with an LVR above 80 per cent who find a property within their pre-approval timeframe, and we're still taking applications from customers who meet the RBNZ's high-LVR exemption criteria (which includes lending up to 90 per cent LVR for customers looking to build a new home).

"We will continue to assess our portfolio in accordance with RBNZ's requirements and will look to recommence this type of lending as soon as we can."

Similarly, an ANZ spokesperson said, "Customers with existing approvals are unaffected until the expiry date, at which point we'll need to apply the updated policy.

"The steps we're taking are a temporary measure and as soon as we are able, we will commence providing approvals for low deposit lending again.

"ANZ remains open for all other home lending, including lower deposit loans for new builds."

BNZ and Kiwibank confirmed they aren't pushing pause on new high-LVR lending.

A Kiwibank spokesperson said the bank prioritises customers who use Kiwibank as their main bank, as well as first-home buyers, when deciding how to use its high-LVR lending allowance.

A BNZ spokesperson said, "BNZ has not changed its low equity settings and continues to lend to customers with less than 20 per cent deposit, depending on the specifics of the deal. All lending decisions are made on a case-by-case basis."

Banks continue to require most residential property investors to have deposits of at least 40 per cent.

The RBNZ only allows 5 per cent of new lending to investors to go to borrowers with deposits of less than 40 per cent.