Financial Shift: Banks Adapt, Buyers Navigate

We had some big financial news this week with the Reserve Bank lifting LVR restrictions and allowing banks to lend as much as they want on low deposit deals. Banks were previouly restricted to requiring at least 20% deposit on the vast majority of their owner occupied mortgages, and at least 30% on all investment property mortgages.

It's caused many to fear there will be a dangerous free for all will ensue. It won't! Banks don't have the appetite to lend more dollars in this environment and they won't have the appetite to lend at higher percentages of property values. John Key, Chairman of ANZ has said "never let a crisis go to waste" and the banks are going to be looking to improve the quality of their lending, not the quantity of lending.

So where will we see an impact?

The sweetspot for banks will be to lend more on investment properties with 20% deposit, to people with good incomes buying in the right locations. We don't think this will apply to investors seeking to get a 3rd or 4th property because there is too much exposure to tenants ability to pay rent. First time investors are an area where banks can get high quality loans on their book without lending a high % of the property value.

It will also be easier for some owner occupied buyers with less than 20% deposit to get a mortgage approved as banks will no longer be working with a limited pool of low deposit mortgages each month.

But in a market where some price reductions are expected, especially in tourism areas and the regions, banks won't be going out of their way to get all the loans away that they can. With an enhanced focus on quality they will be looking more closely now at:

- where is the property (Auckland and Wellington will be more favourable)

- type of property

- type of earnings (self employed may find it harder)

- industry where earnings come from

- account conduct and proven ability to save consistently each month

- dual household income

So it will become easier for some, harder for others. The banks exist to be profitable and provide a return to their shareholders so they will do the above things that serve their interest.

There will be a greater level of variation between the banks than before as different banks will focus on different things, which means the independent advisors working across the banks who are making it their business to track all the latest nuances between the banks will have a greatly enhanced value to those who are seeking mortgages.