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Are 95 percent mortgages on the cards?

Are 95 percent mortgages on the cards?


It’s been three weeks since the Reserve Bank of New Zealand removed the loan-to-value-ratio (LVR) funding restrictions and banks are now technically allowed to lend as much as they like over 80 percent. So has the change had an impact on how the banks are dealing with home loan applicants?

Before going too far into this subject, it’s worth knowing two key points around the removal of the LVR restrictions that haven’t been focused on a lot:

• The main reason the LVR restrictions were removed was so that the large number of mortgage deferrals, colloquially called “mortgage holidays”, didn’t cause the banks to breach the Reserve Bank rules. If, for example, a lot of mortgages went from 78 percent to 81 percent LVR because of the mortgage holidays, the banks would be at risk of serious repercussions from the Reserve Bank. The ability for new home buyers to purchase with less than 20 percent deposit was a side effect of this rule change, not the main purpose.

• Banks have their own internal risk-management and policy teams who decide what their lending criteria will be, regardless of what they are allowed to lend. This can be best summed up by remembering that, just because a bank can lend over 80 percent, doesn’t mean they will.

Read full article here.

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