Parents 'propping up lending'

The latest KPMG Financial Institutions Performance Survey notes that lending grew 1.2% over the last quarter, or just under 5% on an annualised basis.

Reserve Bank data released yesterday showed the number of home loans approved in the week of May 2 was down 10.3% on the same 13 weeks the previous year. The value of approvals was down 9.4% when comparing 13-week periods and down 4.3% when the two 52-week periods were compared.

That’s despite a big decrease in the number of low-deposit loans being issued – they are running at about 5% of banks’ new lending, compared to more than 20% before the loan-to-value kicked in.

New Zealand Home Loans chief executive Mark Collins said home loan activity had not slowed as much as expected on a macro level, probably because people were finding ways around the loan-to-value restrictions.

He said more parents were putting their properties up as security against their children’s loans.

But he said that was causing problems because many did not understand the implications of what they were doing.

They were encouraged to get as much advice as possible, he said, but some still did not seem to fully understand the implications until they sat down with their lawyers to draw up the documents.

“We’ve had parents back out on settlement day.”

Collins said an increase in parents backing their children’s purchases would explain why the market had continued to tick over at its current level despite a heavy reduction in lending to borrowers with small deposits.

“I don’t imagine people have all of a sudden found a whole lot of money. People are finding a way to get over 80%.”