The Reserve Bank's restrictions on home lending have "changed
the game"for New Zealand's banks and created unintended
consequences, according to a report by KPMG.
The accountancy firm today released its annual Financial
Institutions Performance Survey report taking into account
the performance of the banks, finance companies and savings
KPMG partner John Kensington said the introduction of the 10
per cent new lending limit to borrowers with equity of less
than 20 per cent had shifted the action in the market.
"Before the LVR [loan to value] rule change the banks were
probably writing 20 to 30 per cent of their mortgages a month
with a greater than 80 per cent LVR, now, they're probably
writing 4 to 6 per cent of them with a greater than 80 per
"In short, there's going to be spirited competition for
anyone who has a good loan, be it a household mortgage or a
Kensington said one effect of the change was that banks were
now less likely to offer incentives such as "put your new car
on the mortgage".
A further impact was that first home buyers had been left
questioning whether raising enough capital for a deposit
would even be possible.
"A second group of respondents ... may decide that they will
be renters for the rest of their lives."
The report points to the attitude change as the reason behind
some of the economic upturn seen at the end of last year,
particularly at finance companies which had seen a "large
increase in requests for personal, boat, car and jetski-type
But it also noted that it would be a while before the full
impact of the restrictions were known.
"If the restrictions avoid a price bubble, and continue to
operate until such time as a great supply of property can
come online, particularly in Auckland and Christchurch
markets, they will have been a success.
"If, however, they do not ease the house price bubble, and
also keep people out of the market at a time when they could
be investing, this would be undesirable."
Kensington said the banking sector had a solid 2013 with
profits rising 8.61 per cent.
He warned that regulatory reform would be an ongoing
challenge in 2014 and banks would also face pressure from
customers moving from floating to fixed mortgages, and
- by Tamsyn Parker of the NZ Herald