Unless you are a financial news junkie (like us), the recent bank changes would have been easy to miss. But there have definitely been changes. Rupert breaks them down for us.
Here are just a few of the key changes:
- One bank won’t lend on a construction project if it is for investment reasons;
- One bank won’t lend over 70% on any home if you have even one investment property in Auckland;
- One bank has recently reduced it’s maximum interest-only period to five years (a move other banks made last year);
- Several banks have raised the rate that they calculate your affordability at (now at the upper seven per cent);
- One bank has removed the special interest rates if the lending is against an investment property (investment property at this bank will be 0.2-0.5% more expensive than on a personal home);
- Almost all banks have scaled back on lending to foreign investors.
So why are the banks making changes?
Remember a month or so ago when the Reserve Bank mentioned that they would look at an Income-to-Debt Ratio? Essentially, you wouldn’t be able to borrow over, for example, five times your annual income. This would be very bad for banks, especially at that lucrative upper crust (the >$2m houses).
So the banks’ responses have been to show the Reserve Bank Governor that they have levers that they can pull, other levers, levers that show they are holding back from irresponsible lending without turning the tap off all the way.
There will be more changes to follow. The banks will undoubtedly continue to make proactive changes to convince the Reserve Bank to leave them alone. Stay tuned.
Rupert is an Authorised Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.