The end of low equity mortgages

The ASB Bank has announced the end of their low equity mortgages.

ASB Bank has cancelled all pre-approvals for home loans over the 80 per cent loan to value ratio with effect from October 4.

A spokesman for the bank said it had been telling customers and mortgages brokers about the change over the last few days.

The change comes ahead of the Reserve Bank’s crack down on low equity or low deposit lending. From October 1 banks must cap new lending above the 80 per cent threshold to 10 per cent or face losing their license.

Shaun Drylie, general manager, product and strategy at the ASB Bank said the change was being implemented to comply with the new lending restrictions.

“ASB, like all New Zealand banks, has to comply with these restrictions under our conditions of registration.” 

This is big news. Here is why.

  1. Banks are realising there is a storm brewing;
  2. Storm = housing accord and a massive supply of 40,000 dwellings in 3 years (equivalent to 10% the size of existing Auckland);
  3. 12,000 consented dwellings in Auckland processed in 3 months adds to (2) above;
  4. Reserve bank hinting it could raise interest rates next year;
  5. No real reason for higher house vales in Auckland – not underpinned by massive immigration and rentals are stagnant;
  6. Christchurch rebuild isn’t happening and may drag on therefore not boosting economy in a big way – spill off isn’t going to be there;
  7. Possible change of government if Labour and the loony greens get their shit together;

ASB is not doing this as a knee jerk reaction. They have substantially changed their position. If they thought the loans were fine and no risks exist in the future they wouldn’t have pulled the pin.

One worrying aspect though is that we may see people lose deposits on houses they are unconditional upon too.

Having worked for more than ten years in a major bank I can;t see a problem with these changes. When I first started working at the bank you had to have the 20% deposit and prove where it came from. I fail to see why low equity mortgages are a good thing.

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As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet. Cam Slater doesn’t do quiet and, as a result, he is a polarising, controversial but highly effective journalist who takes no prisoners.

He is fearless in his pursuit of a story.

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