The New Zealand Bankers’ Association has urged prospective borrowers to talk to their bank as the Reserve Bank’s low equity lending restrictions come into force next week.

Under the Reserve Bank’s new rules which take effect on October 1, banks must limit new residential mortgage lending with loan-to-value ratios (LVR) over 80% to no more than 10% of the dollar value of their new housing lending flows.

The move comes on top of increased capital requirements for the high LVR housing portfolios of the four largest banks from September 30. The new rules have resulted in low equity premiums and higher interest rates for high LVR borrowers as banks work to meet the new requirements ahead of the deadline.

Referring to the new lending limits, New Zealand Bankers’ Association chief executive Kirk Hope said the goal posts had moved for low equity borrowers.

“It means people with a deposit of less than 20% will have reduced access to a mortgage. Households and small businesses may be declined loans because of the Reserve Bank’s lending restrictions.

“We suggest you talk to your bank about your individual needs and circumstances.

“Our banks are very competitive, and will continue to do all they can to meet the needs of their customers within the bounds of the Reserve Bank-imposed lending limits,” said Hope.

The Banker’s Association has been encouraging people to make a date with their money during money week.

New Zealand Bankers Association spokesman Kirk Hope said borrowers being forced into the unsecured lending market was always expected.

“It says it’s likely banks won’t even lend 10 percent, and it’s more likely to be 5 percent.”

The New Zealand Bankers’ Association today welcomed the first reading of the Credit Contracts and Financial Services Law Reform Bill, and cautioned further work was needed to meet the Bill’s aims.

“Quality regulation is well-targeted and properly enforced. That’s the outcome we’re looking for here,” said New Zealand Bankers’ Association chief executive Kirk Hope.

The Bill aims to reform the law around consumer credit contracts to encourage wider responsible lending and provide improved protection for vulnerable consumers.

“Banks are responsible lenders. We strongly support measures that target unscrupulous lenders and provide greater protection for vulnerable people. We’re keen to see all lenders held to the same standards we already observe.

“The law needs to strike a balance between protecting vulnerable consumers and ensuring legitimate and well-regulated lenders do not incur substantial additional compliance costs.

“The Credit Contracts and Financial Services Law Reform Bill presents an opportunity to get this balance right. We look forward to engaging in the legislative process to achieve that balance, and we congratulate Minister Foss on progressing the Bill,” Hope said.