RB eases loan limits in housing

Looser home loan rules may clear the way for 4500 more houses to sell to first-time buyers each year.

From January, loan-to-value ratio (LVR) restrictions will ease for owner-occupiers and investors, the Reserve Bank said.

Up to 20 per cent of new loans will be allowed to go to owneroccupier borrowers with a deposit smaller than 20 per cent. At present, only 15 per cent of new lending can be to this group.

Mike Pero Mortgages chief executive Mark Collins pointed to statistics from the Reserve Bank showing that last month nearly $500 million in new lending was to borrowers with deposits of less than 20 per cent.

‘‘If we assume the banks take the full extra 5 per cent, that’s another $250m in lending.’’

Using the KiwiBuild price cap of $650,000 as a typical first-home price, that would equate to 380 more homes selling across the country in a month, or 7 per cent of typical total monthly turnover.

‘‘That’s 4560 [buyers] over the year that wouldn’t have otherwise had the opportunity.’’

If first-home buyers opted for houses cheaper than $650,000, the number of additional purchases would be higher.

But Collins said the change was not a magic solution for firsthome buyers.

Buyers would still need to find a suitable property, and prove to a bank that they could afford it.

Banks apply low-equity margins and fees for borrowers with small deposits, which can increase interest rates by as much as 150 basis points.

‘‘At 90 per cent you still have to find $80,000 in Auckland on average. It’s not spare change you find down the back of the couch.’’

But mortgage broker Bruce Patten, of Loan Market, said there would be a noticeable difference for borrowers.

He said that when the limit was extended from 10 per cent of borrowing to 15 per cent, it made a noticeable difference.

‘‘Even though the banks don’t operate anywhere near the threshold, if by going to 20 per cent it means they can move to 18 per cent [of new borrowing to people with small deposits] it will make a big difference. I’m really pleased to see it.’’

New builds are exempt and many of the banks already offer deals to those who buy through the Government’s KiwiBuild scheme.

Up to 5 per cent of new lending will be allowed to be to investors with deposits of less than 30 per cent. At present the threshold is 35 per cent.