Signs of Restrictions on High Loan To Value Loans Appear

The Reserve Bank confirmed back in May that by dipping into a newly created toolbox, it intends to increase the amount of capital the Banks have to hold to cover lending at Loan To Value ratio’s (LVR’s) over 80%. Given that lending above 80% LVR makes up about 20% of home lending and perhaps more importantly 30% of new lending, its hoping that by doing so, some of the current “exuberance” may ease at the margins of the (read Auckland) property market.

Translation, the cost of these loans will go up for low deposit home purchasers.

In an extremely unscientific analysis, scanning back thru ones memory bank of recent loans over 80% to 1st home buyers, next to every one of them has involved in part, a gift or interest free loan from Mum and/or Dad. You wonder then if a side effect maybe that Parents should prepare for a larger tap on the shoulder with respect to house purchase deposits as the kids attempt to avoid increased loan approval fee’s. 😉

And while these Reserve Bank changes are expected to be formalised in September we have seen ASB and Sovereign move in advance today by announcing that from Monday the charging of Low Equity Fee’s (LEF’s) on lending over 80% will recommence. Fierce market competition had meant that in recent times these fee’s were being reduced or waived.

Also getting a tweak is the set interest rate used to determine an applicants loan affordability from 6.0% to 6.50%. The net effect of this is that the amount one can borrow on any set income just reduced.