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@dogmeat said in Bank Lending/CCCFA:
@crucial I think the market is definitely turning but not rapidly or far.
Equities on the other hand. Liquid so much more volatile. Mine are down 3.6% in January
After a strong and steady last quarter in 2021 things are pretty bumpy right now
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@godder There are some numbers we don't have access to, such as the number of applications for home loans and the breakdown of declined vs approved applications.
But if we assume the number of applications was constant, given a year-on-year growth of 20% in house prices we could expect that the value of the loan applications, and the value of the approved loans, would grow by 20% as well. That didn't happen. So if the argument is being made that the net borrowing was largely in line with previous years, that would seem to be a real-world decline in lending, yes?
We should also be aware that the CCCFA amendment implementation was delayed shortly before it was due. Banks' systems and process were rolled out in advance of the original date. Things didn't simply change overnight in December.
I suggest that the narrative of "Lending figures have dropped, unintended consequences, how could the government not see this" could just as easily be "Lending figures have dropped because lenders having to verify application information has reduced the poor quality loans being made" or "New legislation takes time for everyone to get comfortable applying".
Banks don't want to lose money. That's not new. The new processes aren't about loan quality, they're about potential liability. Banks were able to exercise discretion where they believed common sense supported granting an application. Now they can still do that but there are penalties for getting that wrong that didn't exist before, so they are choosing not to use their discretion. The government should have seen this, especially when they were told explicitly that that's how it would play out. They don't seem to understand that, sure, they can dictate how banks assess the risks. But they can't force them to lend.
The next unintended consequence is what the banks do to make up the shortfall in home loan income. Coming to an economy near you...
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@jc just listened to 9 to noon and they had the minister on, fresh from talks with bank leaders about tweaks to the examples and guidelines. There were some absurd examples from what they shared in the interview that totally need updating. That aspect about banks also exercising their own judgement on who to lend to also came up. As did the emerging pinch for small biz owners who draw on home mortgages to top up etc.
A bit of push back on the latest stats of success v denied applications in the small business space, where it was 5% down and that lines up with Dec/Jan trends. It was much bigger for home/reno loans (around 30% drop I think), but unclear how much of that is good - ie folks not getting loans they can't manage, versus folks who should be exempt and not get caught in all the extra layers of 'due diligence'.
Will be interesting to hear from bank leaders over the next week and see if that is an accurate representation and/or how much spin has been added. -
and that absurd example... person on 300k salary with 1 million of assets goes for a loan and succeeds. Compared to someone seeking a home loan with 10k in Kiwisaver and a modest income (sorry, I was still laughing at the first one and missed this bit). If those exemplars or whatever are being used as actual guidelines no wonder it's having unintended consequences.
edit - those were what they talked about so no doubt there is a bunch through the middle.
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https://www.stuff.co.nz/business/127657685/ir-reports-sharp-drop-in-first-home-withdrawals-from-kiwisaver
This seems relevant, and is put squarely on the change to reduce 80% LVR exemptions as part of the banks' loan portfolios from 20% to 10%.Mortgage advisers and property experts say the dip is not the result of changes to the Credit Contract and Consumer Finance Act (CCCFA), which have seen the proportion of home loan applications that are approved fall.
Instead, they blame Reserve Bank Te Pūtea Matua limits on how many low-deposit loans banks are allowed to make.
Obviously not the whole story, but no doubt it's some.
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@godder said in Bank Lending/CCCFA:
https://www.stuff.co.nz/business/127657685/ir-reports-sharp-drop-in-first-home-withdrawals-from-kiwisaver
This seems relevant, and is put squarely on the change to reduce 80% LVR exemptions as part of the banks' loan portfolios from 20% to 10%.Mortgage advisers and property experts say the dip is not the result of changes to the Credit Contract and Consumer Finance Act (CCCFA), which have seen the proportion of home loan applications that are approved fall.
Instead, they blame Reserve Bank Te Pūtea Matua limits on how many low-deposit loans banks are allowed to make.
Obviously not the whole story, but no doubt it's some.
It's not an either/or thing. As you will know better than most, the legal framework that the government controls dictates what the RBNZ sets as banking regulations and operational parameters for themselves and the financial institutions. Then there are other, overlapping legal frameworks that dictate directly what the financial institutions are able / obliged to do. The financial institutions set in place processes and mechanisms that they use to make sure they comply with those laws that directly govern them as well as the operational directives from the RBNZ.
The CCCFA amendment didn't change any of the directives from the RBNZ, but it did set in place new expectations for how the banks executed their internal procedures. Effectively this means that the RBNZ says things like reduce your exposure to non-80% LVR loans to 10%. The process of bringing their loan book into compliance is subject to the new terms in the CCCFA amendment. If they look at a loan they are obliged to check for affordability.
And the directive to reduce the exemptions doesn't ban them, it just limits them: it is still within a bank's discretion to issue an 85%, 90% or even 100% LVR loan if the circumstances are right. But if they are having to do affordability checks on someone with a 20% or bigger deposit (which they are), imagine the due diligence they have to do on someone who only has a 10% deposit. Looking at it from their POV, if they can be deemed reckless by offering a $400k loan on a $500k property, there would need to be near certainty of affordability before they offered a $850k loan on a $1m property.
I also find it ironic that QE and the Support For Lending specifically put large volumes of cash onto banks' balance sheets. If they weren't supposed to be lending it out what on earth did the government and RBNZ think they were going to do with it? And why didn't they spread it more widely? As "picking winners" goes this is even worse than the lockdown windfalls for supermarkets IMO.
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@jc said in Bank Lending/CCCFA:
@godder said in Bank Lending/CCCFA:
https://www.stuff.co.nz/business/127657685/ir-reports-sharp-drop-in-first-home-withdrawals-from-kiwisaver
This seems relevant, and is put squarely on the change to reduce 80% LVR exemptions as part of the banks' loan portfolios from 20% to 10%.Mortgage advisers and property experts say the dip is not the result of changes to the Credit Contract and Consumer Finance Act (CCCFA), which have seen the proportion of home loan applications that are approved fall.
Instead, they blame Reserve Bank Te Pūtea Matua limits on how many low-deposit loans banks are allowed to make.
Obviously not the whole story, but no doubt it's some.
It's not an either/or thing. As you will know better than most, the legal framework that the government controls dictates what the RBNZ sets as banking regulations and operational parameters for themselves and the financial institutions. Then there are other, overlapping legal frameworks that dictate directly what the financial institutions are able / obliged to do. The financial institutions set in place processes and mechanisms that they use to make sure they comply with those laws that directly govern them as well as the operational directives from the RBNZ.
The CCCFA amendment didn't change any of the directives from the RBNZ, but it did set in place new expectations for how the banks executed their internal procedures. Effectively this means that the RBNZ says things like reduce your exposure to non-80% LVR loans to 10%. The process of bringing their loan book into compliance is subject to the new terms in the CCCFA amendment. If they look at a loan they are obliged to check for affordability.
And the directive to reduce the exemptions doesn't ban them, it just limits them: it is still within a bank's discretion to issue an 85%, 90% or even 100% LVR loan if the circumstances are right. But if they are having to do affordability checks on someone with a 20% or bigger deposit (which they are), imagine the due diligence they have to do on someone who only has a 10% deposit. Looking at it from their POV, if they can be deemed reckless by offering a $400k loan on a $500k property, there would need to be near certainty of affordability before they offered a $850k loan on a $1m property.
I also find it ironic that QE and the Support For Lending specifically put large volumes of cash onto banks' balance sheets. If they weren't supposed to be lending it out what on earth did the government and RBNZ think they were going to do with it? And why didn't they spread it more widely? As "picking winners" goes this is even worse than the lockdown windfalls for supermarkets IMO.
Absolutely fair, especially that last point about Funding for Lending, should have closed that months ago (and I did say that the article was not the whole story of the reduction in lending). One of the exemptions to the 80% LVR is new builds, so those aren't counted, but I assume they also don't make up a large portion of mortgages. Reducing from 20% to 10% of the loan book as high LVR mortgages obviously doesn't prevent that lending, but if a bank was already at or above 10%, does put an immediate stop to further lending above 80% LVR (other than new builds) until the bank gets down to the 10% limit.
Edit: https://stats.govt.nz/information-releases/property-transfer-statistics-december-2021-quarter
This also shows quite a reduction in actual property transfers of homes.
There were 41,460 property transfers involving a home in the December 2021 quarter (down 19 percent from the December 2020 quarter)
Bank Lending/CCCFA