Home buyers looking for ways around low equity restrictions
4 September 2013
Home buyers already looking for ways around low equity restrictions, adding to debt
The Reserve Bank of New Zealand may be seeking to cool the housing market in Auckland with restrictions on low equity mortgages, but local mortgage brokers are already seeing evidence of home buyers looking to circumvent the move and increasing their debt burdens as a result.
Head of Auckland mortgage brokers LoanPlan, Christine Lockie, said banks have already started restricting low equity mortgages ahead of the 1 October deadline with a combination of interest rate and low equity fee increases, coupled to a halt on low equity pre-approvals - but buyers are determined to forge ahead regardless.
"If people want something, they want it and neither the government or the Reserve Bank is going to stop them getting at it. This is an experiment by the powers-that-be and it will go badly – we're already seeing evidence of this.
"In effect, all the Reserve Bank is doing is making our market more accessible to overseas buyers, shutting out poorer Kiwis and increasing consumer debt. I am seeing parents are taking on more risk to offer equity as collateral security for their children, or raising their own debt levels to provide deposits.
"Other options people are exploring include second mortgage funding and private funding - which is available for mortgages at 90 per cent plus. Of course all these options are higher risk, more expensive and achieving nothing but more debt."
Ms Lockie said that banks are already not offering the same discounts, refusing pre-approvals above 80 per cent and or increasing low equity fees. Some recent examples include ANZ increasing its low equity fees to up to two per cent of the loan amount, and Westpac has raised interest rate margins for lending above 80 per cent.
"Banks were using external insurers, but have now started self insuring – even Kiwibank. They have also chopped broker discounts in this area. In other words, they are covering the cost of insurance themselves, but charging the client for it. Will this be an alternate source of revenue for the banks?
"Despite the low equity lending restrictions which we are seeing implemented before time – partly because there are already so many pre-approvals over 80 per cent out there – houses in Auckland continue to fetch outlandish prices.
"For some commentators to say that overseas buyers are not contributing to high prices and the fierce housing competition is naive - we're on the ground and we see evidence of it every single day. The trouble is the origin of the buyer is not reflected in records or in sale-and-purchase agreements.
Ms Lockie urged buyers to seek impartial financial advice from an experienced adviser before making decisions which could come back to bite them.
"The restrictions are going to make finance a lot more expensive, some people are going to make a lot of money and consumer debt will increase," Ms Lockie said.
Based in Takapuna on Auckland's North Shore, LoanPlan are NZMBA accredited mortgage brokers with a 20 year track record in helping people to get the property and business finance they need at competitive rates and on favourable terms
A full range provider of integrated financial services and a vast range of financial products including wealth creation and asset protection, LoanPlan is independent.
• FSP41942 - Authorised Financial Advisor;
• New Zealand Mortgage Brokers Association award for Broker of the Year - Northern Region in 2006 and 2008;
• NZMF Broker of the Year in 2004, 2005, 2006 and 2007.