Jamie Gray odt.co.nz 30 July 2013
Westpac has launched a product aimed at allowing first home buyers to be helped into properties by their families in recognition that getting a loan will soon get tougher for those armed only with a low deposit.
Some time in the next two months, banking experts expect the Reserve Bank to introduce loan to value ratio (LVR) restrictions on banks in a move aimed at making sure the financial system is not threatened by high-risk lending practices.
A loan-to-value ratio of, say, 80-20 would mean a minimum deposit of 20 per cent of the property's value would be required before a bank could lend.
Westpac said it had in the past allowed borrowers to use the equity of third parties to raise money but that its "family springboard" product would formalise and streamline the process.
The bank will allow prospective home owners to use the equity in the property of an immediate family member, or their savings, to reach the required deposit.
No cash would be required and the family's exposure could be limited to the "springboard" amount with no liability attached to the value of the rest of the loan, the bank said.
Ian Blair, general manager of retail bank for Westpac, said the move was in response to an "evolving regulatory environment".
Blair told APNZ that this type of lending had in the past been unstructured and cumbersome. He added that "springboard" was not intended to circumvent the Reserve Bank's new rules.
"It appears that we are going to have an environment where low equity loans are going to be more difficult get, and this helps address that issue," he told APNZ.
"The loan is de-risked by 'mum and dad' putting up a portion of their equity to help get them into the house," he said.
"That does not increase the risk in the financial system because the required equity for the loan is coming from another source ," he said.
PwC partner and banking specialist Sam Shuttleworth some banks had already adjusted their lending to align themselves with the Reserve Bank's wishes.