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Market Update with Carie TownleyMarket Update with Carie Townley

Banks Given Breathing Space With LVR Ahead Of Spring Selling Season

The Reserve Bank of New Zealand (RBNZ) is giving banks more time to meet the new Loan to Value Ratio (LVR) requirements, with the traditional bumper spring selling season about to get underway. After consulting with lenders, who argued that an extension would be required in order to clear the backlog of pre-approved loans, the RBNZ decided to push the deadline out from September until 1 October, 2016.

Under the new amendments, banks will allow only 5 per cent of loans to residential property investors to have an LVR of greater than 60 per cent (i.e. a deposit of less than 40 per cent of the value of the property). Additionally, loans to owner-occupiers with an LVR of greater than 80 per cent will be capped to 10 per cent of lending.

The RBNZ anticipates the strict constraints on mortgages will work toward reducing house price increases. The changes have also been put in place to protect those with higher borrowing needs, as they’re the most vulnerable segment of the market and the worst affected in the case of economic or financial downturns such as a recession, increase in interest rates, or a decline in the housing market.

Loans already exempt from the existing LVR restrictions, such as loans to construct new residences, are not currently affected. However, RBNZ Deputy Governor, Grant Spencer said, “The consultation process closed on 10 August and we are continuing to analyse submissions. Further adjustments to the proposals, including the exemptions, are still possible and we expect to publish a final policy position later this month”.

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Deposit rates raised, but full OCR reductions not passed on

This month saw the Reserve Bank of New Zealand cut the Official Cash Rate by 25 basis points (0.25 per cent), bringing it to a record low of just 2 per cent. State owned Kiwibank has responded by cutting its floating mortgage rates by 20-25 basis points effective immediately. However, ANZ Bank, Westpac and Bank of New Zealand have so far only passed on some of the reduction, cutting their floating rates by only 5-10 points.

There was some good news for savers though, with major banks announcing increases to deposit rates. Westpac are currently offering a special six month term deposit rate of 3.5 per cent, whilst ANZ and BNZ are both offering a term deposit rate of 3.6 per cent over 18 months. ASB is leading the charge with a term deposit of 3.65 per cent over the same time period.

The rise in savings rates comes as banks look to attract more deposits from customers, a more stable source of funding relative to the wholesale market. New Zealand’s property market is continuing to boom, resulting in lending growth far exceeding retail deposits in recent times.

Despite the increase in deposit rates, there has been disappointment over the major banks’ decision not to pass on the full OCR reduction to borrowers. The cuts have been introduced by RBNZ as part of their bid to keep inflation at an annual range of 1-3 per cent and boost spending, but unless the banks comply, this is unlikely to be entirely successful.

There are suggestions that the OCR could be reduced even further before the end of the year. In a statement released by the RBNZ, Reserve Bank Governor Graeme Wheeler said, “Our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range.  We will continue to watch closely the emerging economic data.”

Now is a good time to review the home loan deal that you or your clients are currently on. I work with a panel of lenders, not just big banks, to source the right loan for my client’s personal scenario. Every loan requirement is different so please contact me to talk about your situation to see if I can find you a better deal with the current low rates.

For a personal mortgage reduction analysis to identify the strategies that are in your best interest, contact Carie today on 0275 228 940, email .(JavaScript must be enabled to view this email address).

 


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