According to general disclosure statements from major lenders, New Zealand banks are experiencing a sharp surge in low-equity housing lending against the backdrop of a soft housing market. ANZ New Zealand holds 9.3%, or nearly $11.9 billion, of its total home lending in loans where borrowers have less than 20% equity, up from 7.5% a year prior and 6.2% five years ago.
Major Bank Low-Equity Lending Trends and Data
Bank equity data highlights widespread growth in high loan-to-value ratio (LVR) lending across the sector. Kiwibank’s low-equity lending reached $3.8 billion, representing 11.2% of its total home lending compared to 8.6% a year earlier, according to financial disclosures. Westpac NZ reported $8.8 billion in high-LVR loans, accounting for 10.6% of total lending, rising from 7.2% five years ago. Reserve Bank residential mortgage lending data for July shows that $1.261 billion—or 16% of the total $7.853 billion in new lending commitments—was loaned with an LVR above 80%, climbing from 13% in July 2015 and 9% in July 2021.
Reserve Bank LVR Restrictions and Market Stance
Despite rising high-LVR lending volumes, the Reserve Bank stated in August that housing risks were contained, therefore it was leaving its LVR restrictions on banks’ housing lending unchanged. Total housing lending stood at $397.5 billion as of June 30, with LVRs above 80% comprising $39.8 billion, or 10%, of that total.
Housing Market Conditions and Property Prices
The rise in high-LVR lending coincides with a sluggish housing market tracked by the Real Estate Institute of New Zealand (REINZ). REINZ data shows the national median price dropped to $760,000 in July, marking a 0.7% decrease year-on-year and an 18% fall from the November 2021 peak of $925,000. Sales volumes fell 10% year-on-year to 6,090 transactions, while inventory increased 9% to 33,252 properties. The national median days to sell reached 50 days, up two days year-on-year and marking the fifth slowest July on record since REINZ records began in 1992.
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Risks Associated with Low-Equity Borrowing
Low-equity lending comes with risks to borrowers, lenders and the financial system as a whole.
Historical Context and Macro-Prudential Tools
Frequently Asked Questions
What is the current LVR restriction limit for owner-occupiers?
How much low-equity lending do major banks currently hold?
Major lenders report low-equity lending ranging from 6.9% to 11.2% of their total home loan books, depending on the individual institution.
Why did the Reserve Bank reintroduce LVR restrictions?
Thus LVR restrictions were reintroduced from March 2021 and have remained in place since.
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