Banks Stop Loaning to Foreign House Buyers

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Forums › Finance and wealth management › Banks Stop Loaning to Foreign House Buyers

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#1568948 9-Jun-2016 20:17

Fred99:
gzt: Headline should read 'two out of five major banks'. Many times more made no change at all. Why will it make a difference just go to another bank.

Even if the other local trading banks follow, mortgage brokers will arrange finance from second tier offshore lenders in the same way they have been doing to get around LVR restrictions. At least there's a positive side to that - when it comes (and it will) then those lenders will fail first, however it's optimistic to expect that it'll stop there.

USA/Nevada - Subprime etc
Greece - Euro crisis
Dublin - Oversupply
NZ - Undersupply, niche overseas investment market, foreign trusts, rental returns optional, party on!

gzt

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#1568958 9-Jun-2016 20:28

JimmyH:
Assuming Stuff has got any of the facts right (which is always a pretty heroic assumption), I doubt it will have much impact on house prices. It looks more like two banks trying to reduce the risk of their own loan books in a market bubble, by not loaning to a class of people that they have deemed to have particular risks associated with them.

Credit worthy buyers will presumably still be able to find money - from the other banks, from overseas banks and from non-bank lenders, so I doubt it will make much difference to buying pressure. I'm old enough to recall how most lawyers had profitable nominee company businesses, privately matching clients who had money they wanted to lend with people wanting mortgages, back in the day when Muldoon restricted interest rates and bank lending growth. If there are willing borrowers and willing lenders, the market tends to find a way to match them up - irrespective of bank or government restrictions.

But if it improves bank credit quality and reduces their risk then, IMO, it's a good thing.

Tend to agree. Looks like one bank taking an opportunity to improve the quality of the loan book at an opportune time to eliminate this borrower class so as not to scare the very same market they are exposed to.

Other banks could follow but maybe they are not exposed to this borrower class to the same degree and don't feel the need.

blackjack17

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#1568961 9-Jun-2016 20:32

mattwnz:

I can't see it making any difference. And if the governments stats are to believed where they claim hardly any foreigners are buying NZ houses anyway, it won't make any difference whatsoever.

The stats are rubbish

if you have a student visa and you buy a house you would according to govt stats be considered a local. That is how easy it is to get around.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11636711

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gzt

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#1568982 9-Jun-2016 20:54

Imo there is only one thing worse than thinking LVR changes will make housing more affordable and that is thinking that restricting 'foreign' buyers will help housing affordability much overall either.

gzt

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#1568997 9-Jun-2016 21:11

Massive massive nzherald article on risk of a crash:

http://mobile.nzherald.co.nz/business/news/article.php?c_id=3&objectid=11653661

The article says lots but I'm curious about this:

"The rules that we created in the 1980s are that if a bank lends to houses it is deemed less risky and it is cheaper for them to lend that money and they make more profit."

What were the nature of those changes and why was the prior situation so different?

Edit: Answering my own question after some googling nz banks were freed from any quantitative restrictions on their lending to paid capital ratios.

wellygary

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#1569026 9-Jun-2016 21:58

gzt: : Answering my own question after some googling nz banks were freed from any quantitative restrictions on their lending to paid capital ratios.

Not true, nz banks have both capital and funding ratios

http://www.rbnz.govt.nz/regulation-and-supervision/banks/prudential-requirements/information-relating-to-the-capital-adequacy-framework-in-new-zealand

http://www.rbnz.govt.nz/regulation-and-supervision/banks/prudential-requirements/liquidity-core-funding-ratio

gzt

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#1569046 9-Jun-2016 22:26

Thanks very interesting. I note that a fair bit was added around 2004 and more again after the GFC.

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gzt

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#1569063 9-Jun-2016 22:48

Found a quick run down of recent 70s to now banking and financial history:

Regulation in New Zealand Banking and Financial Services

http://www.nzfc.ac.nz/archives/2013/papers/updated/57.pdf

It did not cover it exactly but did mention that mandatory liquid assets for banks were abolished in the 80's.

Linuxluver

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#1569065 9-Jun-2016 22:51

blackjack17:

mattwnz:

I can't see it making any difference. And if the governments stats are to believed where they claim hardly any foreigners are buying NZ houses anyway, it won't make any difference whatsoever.

The stats are rubbish

If you have a student visa and you buy a house you would according to govt stats be considered a local. That is how easy it is to get around.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11636711

Plus if family cash bought the house without a mortgage.....what any bank does with lending is utterly irrelevant.

Many Kiwis just don't understand the kind of money some people have available. They think: "Banks? A waste of money. No one with any sense pays interest."

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Geektastic

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#1569069 9-Jun-2016 23:11

mattwnz:

DjShadow:

Might make a small dent, RBNZ is also talking about Debt to Income ratios as the next step

Will be interesting to see what they will set those to. The governments policy with forcing Auckland to open up more land, was a D/I of around 9, which is really far too high IMO. But it is already nearly at that figure, so that is probably why they are wanting to set it so high. But I believe in the UK it is around 5, which would make the most someone could borrow in Auckland around 500-600k ish. If that happened, it really could cause a market crash, when the average selling prices are now nearly double that (completely mad price for a shack and small piece of land). I am just amazed that banks are lending so much money out to a couple to buy a house.

The difference is that the UK has had that measure for as long as I can recall. It used to be 3.5 times your income, or a bit more for joint borrowing. It isn't something they just came up with to try and solve a perceived problem, so any consequences that may arise are already built in to the system.

They also have firmer lending policies in other areas - for example, no UK bank will lend on a house unless they have a qualified valuer inspect it and the valuation agrees with what you are proposing to pay/borrow. This is not a full building survey but it can (and does) throw up construction issues, damp issues and so on where these are reasonably observable to a Chartered Surveyor. That helps weed out a few dogs sometimes.

mattwnz

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#1569075 9-Jun-2016 23:59

gzt:
Fred99:

gzt: Headline should read 'two out of five major banks'. Many times more made no change at all. Why will it make a difference just go to another bank.

Even if the other local trading banks follow, mortgage brokers will arrange finance from second tier offshore lenders in the same way they have been doing to get around LVR restrictions. At least there's a positive side to that - when it comes (and it will) then those lenders will fail first, however it's optimistic to expect that it'll stop there.

USA/Nevada - Subprime etc
Greece - Euro crisis
Dublin - Oversupply
NZ - Undersupply, niche overseas investment market, foreign trusts, rental returns optional, party on!

They are all different, which makes NZ no different. Unlike Greece, our government doesn't have a huge amount of debt. However NZ private debt is massive, as we have borrowed so much to buy our over priced shacks, and then borrowed against those to buy consumer goods, because we felt rich based on the price of our over priced shack. This means as a whole, NZ does have a lot of debt.

I would expect other banks to follow ANZ and Westpac. Also ANZ is a combination of two banks (ANZ and National), and I believe it is the biggest banks in NZ. ANZ bank actually provides 30% of all home loans in NZ (sourced from their own website), so combined with Westpac, it must be between 40-50% of the market. So this move is substantial.

mattwnz

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#1569076 10-Jun-2016 00:06

Geektastic:

The difference is that the UK has had that measure for as long as I can recall. It used to be 3.5 times your income, or a bit more for joint borrowing. It isn't something they just came up with to try and solve a perceived problem, so any consequences that may arise are already built in to the system.

They also have firmer lending policies in other areas - for example, no UK bank will lend on a house unless they have a qualified valuer inspect it and the valuation agrees with what you are proposing to pay/borrow. This is not a full building survey but it can (and does) throw up construction issues, damp issues and so on where these are reasonably observable to a Chartered Surveyor. That helps weed out a few dogs sometimes.

Some of these building surveys in NZ are really poor and they miss things. Partly because anyone can do them, and it is unregulated, so no qualifications needed. But that is getting off topic. They tend to be quick things, with lots of box checking on the ipad, and done very quickly, and they check stupid things, like whether there are door stops, and checking for smoke alarms, which are all things the buyer can do themselves. A proper survey takes hours to do, to check everything.

Some of these building survey companies are even owned by estate agents...

In the 80's when you needed a loan to buy a house, the bank manager had to actually visit the house you were borrowing the money for. It is now too easy to get a loan, partly because banks need to loan money otherwise they don't make money, and depositors are only too happy to lend the banks their money for a tiny return.

surfisup1000

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#1569082 10-Jun-2016 01:51

Linuxluver:

Will this make any difference?

This will help foreign buyers as it will take kiwis out of the market.

surfisup1000

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#1569083 10-Jun-2016 01:58

Fred99:

gzt: Headline should read 'two out of five major banks'. Many times more made no change at all. Why will it make a difference just go to another bank.

Even if the other local trading banks follow, mortgage brokers will arrange finance from second tier offshore lenders in the same way they have been doing to get around LVR restrictions. At least there's a positive side to that - when it comes (and it will) then those lenders will fail first, however it's optimistic to expect that it'll stop there.

Why does the herald not include vancouver/manhattan/san francisco/every large aussie city in the above table? Facts get in the way of a good story i suppose.

Auckland house prices are not going down anytime soon.

Old fellah on talkback was saying he bought a crappy dump on the nth shore for 200k in 2000. He sold it for 580k in 2010. It went to auction again last week in the same condition as in 2000. 2 chinese got into a bidding war and paid 2.3 million for it.

gzt

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#1569101 10-Jun-2016 06:52

Getting a bit closer to the real story:

Australia: ANZ, Westpac hit by hundreds of Chinese home loan frauds

The documentation is fraudulent but ironically the loans perform better than average : ).

Edit: Similar rumours for NZ banks

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