LVR restrictions turn more buyers into non-bank lenders

Tighter loan-to-value restrictions and tighter credit rules could push some first-time homebuyers to non-bank lenders, brokers say.

John Bolton, managing director of mortgage brokerage firm Squirrel, said he had seen demand for non-bank real estate loans “explode” in recent weeks.

“We are seeing a lot more deals turned down by banks now, which would have been approved just four weeks ago,” Bolton said.

Figures from the Reserve Bank show that loans from non-bank lenders increased from $ 2.97 billion in September 2019 to $ 4.6 billion in September of this year.

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New Loan Value Restriction (LVR) rules introduced on November 1 mean banks can lend only up to 10% of new loans to borrowers with less than 20% deposit.

Bolton said tighter LVR restrictions were part of the reason, but changes to the law on credit agreements and consumer finance made it harder for mortgage borrowers, which changed behavior. banks.

“The banks got a lot more conservative really, really quickly. There’s a credit crunch going on, it’s getting harder and harder to access finance, ”Bolton said.

Squirrel is also a lender, and the demand for Squirrel home loans has caused the business to “fall apart,” he said.

Squirrel started a mortgage investment fund that allows investors to invest directly in real estate loans and get a share of the interest.

Bolton predicted that non-bank lenders could take out 10-15% of all home loans over the next two years, if they were able to grow their businesses to cope.

Sam Stubbs, chief executive of Simplicity, said demand for its home loans had increased dramatically in recent weeks due to changes in banks’ behavior.

Simplicity had $ 200 million in home loan applications pending, and the number was growing, Stubbs said.

Non-bank lenders could take a bigger share of the mortgage market, all that was needed was a change in mindset for the average New Zealander, he said.

“There’s a strange phenomenon in New Zealand in that people think borrowing from a bank is inherently safer. But, of course, once you’ve borrowed money, you’ve borrowed it, and it doesn’t matter who you borrowed it from, ”Stubbs said.

The New Zealand market was abnormally oriented towards the big four banks controlling an inordinate share of household debt, he said.

But as KiwiSaver’s capital grew and consumers sought higher returns, non-bank lenders would continue to take more market share, Stubbs said.

Gareth Kiernan, chief forecaster at Infometrics, said something similar was observed in the

loan market when the Reserve Bank first introduced LVRs in 2013, as well as in 2015 and 2016.

“It’s just a change to watch out for in the overall risk profile of the lending business. Obviously, banks are being watched more closely than non-bank lenders. But that said, the Reserve Bank is monitoring non-bank lenders very closely, certainly much more than 15 years ago, ”Kiernan said.

But the biggest impact of the changes has been on the price of consumer mortgage payments, Kiernan said.

“It means people are being forced to pay higher interest rates than they would otherwise have been. This certainly matches the risk profile of these lenders and the costs they also incur in accessing finance, ”Kiernan said.