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sbiddle
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  #1569119 10-Jun-2016 08:03
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wellygary:
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




 

This is ultimately what it comes down to. The entire banking industry is built around one concept - risk.

 

Reading between the lines the RBNZ are seemingly wanting banks to carry more capital or reduce exposure. The easiest way to do this is reduce exposure and lower the risk.

 

 


Geektastic
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  #1569140 10-Jun-2016 08:55
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mattwnz:

 

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.

 

 

 

 

Yes, I agree. The principle difference is that here, there is no such thing as the profession of Chartered Surveyor. 

 

All forms of property related professional are rolled up within the Royal Institution of Chartered Surveyors in a number of areas. For example, General Practice is the area for home valuations, home surveys, boundary disputes, small commercial lettings and so on. Rural Practice combines forestry management, farm management, land law, rural valuation, farm machinery and livestock auctioneering and so on, Building Surveyors are almost architects - they do small alteration designs, technical building surveys, groundworks, contract supervision for building works and so on, Land Surveyors are the ones with the theodolites etc and so forth.

 

Qualifying requires a degree, 2 or 3 years post degree work experience and then passing a set of professional exams - so much like being a lawyer. Professional indemnity insurance is mandatory, as is annual Continuing Professional Development etc etc.

 

No lending institution or insurer would accept any form of valuation or building survey not signed by a full member of the RICS.






 
 
 
 


stevenz
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  #1569146 10-Jun-2016 09:07
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I expect little to no difference, either the foreign buyers are buying with cash so don't need to borrow, or they're buying via a proxy so won't the purchase won't be "foreign" until a later transfer of title.

 

 





Fred99
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  #1569205 10-Jun-2016 10:16
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mattwnz:

 

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. 

 

 

I don't see much difference - nothing which makes the Akl market "special" except a government (and including past labour governments) that set lax policies which have resulted in letting a potential economic disaster build up to the point where a catastrophic collapse is inevitable, as in USA, Greece, Ireland.  It's just a different manifestation of the same thing.

 

Hypothetical under-supply is transient and cyclical.  It's just a market like others driven as much by human nature as by fundamentals. As well as simple house price to income ratios being way out of whack with historical averages, there are other things which have created a perfect storm scenario.

 

Interest rates are at historical lows.  They haven't been set at low levels because the world economy is doing well, but to stimulate demand to counter recession.  Interest rates are going to go up.

 

Almost 50% of Akl properties sold are "investment" for rental. But there's no rental return now - you'd be better in most cases putting money in the bank (and considering that by doing that, you're only just keeping pace with inflation).  When interest rates rise, then owning property for rental income becomes even less viable.  10% gross return on an average $800k Akl property is $1500/week.  If rents are already set at the maximum level that the market will pay (business 101) then there's a very big squeeze coming.

 

About 40% of people in NZ now live in rental accommodation.  One reason may be that some are "locked out" of home ownership (at least in a place where they can find a well-paid job) and another is that some choose to rent because of the mobility it gives them - without having "set roots" like mortgaged home owners, they can pack up and leave.  When a downturn comes (as it inevitably will) home-owners tend to grit their teeth, tighten their belts, and tough it out.

 

 


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  #1569241 10-Jun-2016 10:58
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I was amazed you can have no local income and take up a six figure loan! Wow. I guess I must have been living in the jungle.





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  #1569242 10-Jun-2016 11:01
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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!

 

From my limited understanding of history, I find that whatever happens in Sydney and Melbourne, happens in Auckland and Wellington after 12-18 months. What is going on over there at the moment?

 

 





Involuntary autocorrect in operation on mobile device. Apologies in advance.


Geektastic
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  #1569261 10-Jun-2016 11:31
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joker97:

 

I was amazed you can have no local income and take up a six figure loan! Wow. I guess I must have been living in the jungle.

 

 

 

 

If I earn UD $1 million a year, why would a bank lending in NZ care whether I earned anything here? As long as I can demonstrate that I can afford the loan payments that is the end of their concern.

 

HSBC and other banks which provide a lot of ex-pat services (such as Channel Islands-based versions of Lloyds etc) have been offering foreign currency mortgages for aeons.






 
 
 
 


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  #1569352 10-Jun-2016 12:26
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Maybe, but what if i have a rich Nigerian uncle with proof of earning of US10 million a year and i buy ten properties and take up a total loan of NZD10 million...
All going well banks make money, my uncle makes money and sells them for 12 million in 2 months.

If it doesn't go well, the house will be worth 8 million and my uncle pulls the plug and the bank lose 2 million.




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Fred99
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  #1569363 10-Jun-2016 12:45
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Geektastic:

 

joker97:

 

I was amazed you can have no local income and take up a six figure loan! Wow. I guess I must have been living in the jungle.

 

 

 

 

If I earn UD $1 million a year, why would a bank lending in NZ care whether I earned anything here? As long as I can demonstrate that I can afford the loan payments that is the end of their concern.

 

HSBC and other banks which provide a lot of ex-pat services (such as Channel Islands-based versions of Lloyds etc) have been offering foreign currency mortgages for aeons.

 

 

 

 

They care because they're exposed to risk that in case of negative equity then then the mortgagee will flee.  The bank then has close to zero chance of recovering the deficit from them.  Unlike a NZ resident where the bank will pursue the mortgagee to make up the deficit, and the only way out for the mortgagee is to be declared bankrupt.

 

The overseas non-resident owner is practically able to "walk away" from a negative equity loan.

 

Prudent to note that this change in bank policy acknowledges the possibility that there will be a correction large enough for the above scenario to be a problem to them, even though we're being told that foreign non-resident buyers are a very small part of the market, and many of those buyers wouldn't be financing locally anyway.


Fred99
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  #1569367 10-Jun-2016 12:53
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joker97:

 

 

 

From my limited understanding of history, I find that whatever happens in Sydney and Melbourne, happens in Auckland and Wellington after 12-18 months. What is going on over there at the moment?

 

 

 

 

 

 

A respected (but bear-ish) analyst from BT Fund Management is suggesting doom to the extent that the RBA may drop rates to 1%, that the AUD may fall to USD0.40, that Aus credit rating may be cut, but that the upside from currency fall etc is basically stuffed because of the size of the federal deficit and the people living beyond their means "like they're stuck in 2006".

 

Being stuck in 2006 presumably includes the crazy Australian property markets, which continue to boom.


Geektastic
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  #1569407 10-Jun-2016 13:26
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joker97: Maybe, but what if i have a rich Nigerian uncle with proof of earning of US10 million a year and i buy ten properties and take up a total loan of NZD10 million...
All going well banks make money, my uncle makes money and sells them for 12 million in 2 months.

If it doesn't go well, the house will be worth 8 million and my uncle pulls the plug and the bank lose 2 million.

 

 

 

Sure but that is a lending decision banks all over the world have been making for decades. Nothing has changed.






Linuxluver

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  #1569511 10-Jun-2016 16:08
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Canada is facing the same issues around property and foreign investors...and mainly from China...and overheated housing markets in the largest cities (while other regional and smaller towns  are status or falling). 

 

In this article in Macleans magazine (sort of Canada's equivalent to Time magazine in the US or The Listener here in NZ) they talk about how Canadian banks are moving actively to cool down property lending. For much of the article you could replace "Canada" with "new Zealand" and you could be talking about them interchangeably.  

 

Note also the banks who have moved here in NZ appear to have done so in Australia either at the same time or very recently.

 

So.....this isn't just NZ. It's much bigger and wider than that. Behind it all are the central banks and their concern over debt levels and lending and rapidly-rising property prices in a context where - they know - most of the rest of these economies is on shakey ground.

 

No conspiracy here......just neo-liberalism heading for the same cliff everywhere. 

 

As citizens and voters we have the opportunity every few years to chose who should be the government. It seems staringly obvious that to continue to elect governments with a neo-liberal economic agenda verges on the insane. Canada woke up and dumped it's Conservatives recently. The Australians are having an election shortly. The UK re- elected - thanks to First Past the Post - a conservative government that 65% of voters didn't vote for.....so clearly, they tried, but the voting system meant they just couldn't do it even if almost 2/3s of voters didn't want the Tories. 

 

Our turn next year. More of this destructive nonsense? haven't we had enough since 1984? 

 

So the crisis-du-jour is property. Or is is climate change? Or maybe growing income inequality? Burgeoning debt? The list goes. 

 

 

 

 

 

 





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MikeB4
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  #1569539 10-Jun-2016 16:23
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Linuxluver:

 

Canada is facing the same issues around property and foreign investors...and mainly from China...and overheated housing markets in the largest cities (while other regional and smaller towns  are status or falling). 

 

In this article in Macleans magazine (sort of Canada's equivalent to Time magazine in the US or The Listener here in NZ) they talk about how Canadian banks are moving actively to cool down property lending. For much of the article you could replace "Canada" with "new Zealand" and you could be talking about them interchangeably.  

 

Note also the banks who have moved here in NZ appear to have done so in Australia either at the same time or very recently.

 

So.....this isn't just NZ. It's much bigger and wider than that. Behind it all are the central banks and their concern over debt levels and lending and rapidly-rising property prices in a context where - they know - most of the rest of these economies is on shakey ground.

 

No conspiracy here......just neo-liberalism heading for the same cliff everywhere. 

 

As citizens and voters we have the opportunity every few years to chose who should be the government. It seems staringly obvious that to continue to elect governments with a neo-liberal economic agenda verges on the insane. Canada woke up and dumped it's Conservatives recently. The Australians are having an election shortly. The UK re- elected - thanks to First Past the Post - a conservative government that 65% of voters didn't vote for.....so clearly, they tried, but the voting system meant they just couldn't do it even if almost 2/3s of voters didn't want the Tories. 

 

Our turn next year. More of this destructive nonsense? haven't we had enough since 1984? 

 

So the crisis-du-jour is property. Or is is climate change? Or maybe growing income inequality? Burgeoning debt? The list goes. 

 

 

 

 

 

 

 

 

 

 

Over my many many decades on this rock I have only experienced a few years of financial stability in NZ. As a National supporter I often how successful this financial system we have really is and often doubt does the West have it wrong.


mattwnz
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  #1569591 10-Jun-2016 17:10
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As predicted, other banks are now following. But can't see this making much difference. But if overseas house buyers do dryup, it may cause house prices to stall. The problem is that people will never want to sell a house for less than they paid, but that happens with other forms of investment. But people who buy a house does get the use of that house during that period, so they shouldn't really be solely thinking of it as an investment. 


mattwnz
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  #1569601 10-Jun-2016 17:13
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MikeB4:

 

 

 

Over my many many decades on this rock I have only experienced a few years of financial stability in NZ. As a National supporter I often how successful this financial system we have really is and often doubt does the West have it wrong.

 

 

 

 

But do you actually understand it, and how borrowing keeps going up and up. Very few people do understand the whole thing, even financial experts I don't think understand it, as 50% of them say one thing, and 50% say the opposite. 


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