CBA slams mortgage brakes as MP bites in NZ


From Banking Day:

Commonwealth Bank’s New Zealand subsidiary ASB has announced that customers with pre-approvals for high loan-to-valuation ratio mortgages must “use them or lose them” within 10 days, in its most drastic measure yet to slow lending to meet the Reserve Bank of New Zealand’s new “speed limit”.

ASB apologised to customers for withdrawing pre-approvals not used by October 4 and asked them to revisit the bank to either increase their deposit or look for a cheaper house.

The RBNZ’s limit on high LVR mortgages kicks in from October 1, but banks have large numbers of pre-approved mortgages that have yet to be drawn down or expire within six months of issue.

The RBNZ has given banks a six-month window from October 1 to reach the limit, which is that banks cannot lend more than 10 per cent of their new mortgage flow in the form of mortgages with LVRs of over 80 per cent.

ASB was more aggressive than other banks in this market segment and is too date the only one to pull in so hard. The RBNZ experiment can’t succeed soon enough.

David Llewellyn-Smith
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  1. Wow, this is drastic.

    To me, an indication that the herd’s demand for housing credit has not been reduced by the RBNZs jawboning and so the banks have to actually ration supply.

    I had thought the herd would be spooked by the monetary tightening from the RBNZ and would pull back themselves, but it seems that they either don’t care or don’t even realise what is going on…

    • The herd doesn’t realize what’s going on, most are well and truly suckered into the Banks “What about the FHBers” campaign, because it looks to them like Corporate Social Responsibility.

      I would think ASB would not be doing this unless they resigned that they had to.

      My suspicion is that in Australia, MP runs counter to RBA’s plans to fix the mining capex hole with commercial construction. So the RBA have been vocally against it. They also say the loans will go to building societies.

      • (NB: The talk here is already about “Don’t worry. There are ways around this….” So the blunt end of the interest rate axe it is likely to have to be)

      • Just but one comment from webblogs this morn:
        “That is so much rubbish.
        Non bank lenders over whom the RBNZ have no control, will fill the gap very quickly.
        One things regulators, and you apparently, do not understand is the futility of trying stop people buying houses.
        The number of people who will be affected will be those who would have failed to get a loan in any case.
        The price of houses will not fall and the supply will continue to be insufficient to meet demand.”

        Close them off? Sure. But it boils down to removing the oxygen; the funds, to do that. And if the Aussie bank parents want to keep the fire going – they will.

      • if nothing can be done by anyone to fix a bad situation Janet why are you always proferring your opinion? Seems a waste of breath.

      • dumb_non_economist

        The Herd! Ask the average RE buyer what macro prudential rules are and the response will be….”Macro whaaAT!!!”

        They may have seen it mentioned in the msm, may have even heard it spoken on tv, but until the shtf they won’t pay any attention to it. It has to be IN THEIR FACE, before they do.

      • Janet
        While I can’t speak for other lenders, my organisation (one of those “non-bank lenders” you are talking about) will definitely NOT be undertaking much of the high-LVR lending that the big banks are unable to fund. There are many reasons for this:
        1. It is bad business. We do not want to stand in the market at this level of lending and write a lot of high LVR business particularly in a market where LMI is no longer available.
        2. Our wholesale funders in NZ are the big banks and they are imposing the same macrodrudential controls on us as they themselves are subject to.
        3. We get heavily penalised in the capital structures of our securitisation issues for higher LVR loans.
        4. We sit at the bottom of the waterfall and any losses hit our P&L and balance sheet.

        While I appreciate the bad experience the NZ market has had with the collapse of finance companies in recent years, not all non-bank lenders are the same – some of us actually do not want to write rubbish loans!

  2. Mortgage brokers would love this, they can get around these regulations quiet easily making them feel important. Imagine the marketing they can get out of it…

    “Can’t get an 80% loan? Come to us and we can get you one…”

    • “they are trying to reduce the number of people who can get rich off housing by making it more exclusive to those already with money, but you don’t have to miss out! We can get you in to the home owners club so you can profit as well”

      Oh yep, its got marketing potential!