A leading mortgage broker says restricting bank mortgage lending to people with small deposits could have the perverse result of further fuelling the housing boom.
From next month, the Reserve Bank has decreed that no more than 10% of banks' new mortgage lending by value can be to people with deposits of less than 20%.
Loan Market licensee Bruce Patten said banks were likely to loosen their criteria for mortgage lending to people with more than a 20% deposit as a result.
"The more lending they do under 80%, the more they'll be able to do over 80%, so it'll be interesting to see how they start to position themselves to try and take on lending," he said.
"My view is that some of them will considerably loosen their criteria in the under 80% space, and that may create a whole lot of issues in itself, because if they start to get a bit loose around that stuff, so that they can do more of the over 80% stuff, it might bring us back even more to the pre-2007 market."
However, only time would tell and much depended on what banks saw as their target, said Mr Patten, who is will probably be the first New Zealand mortgage broker to have written $1 billion worth of home loans.
ASB Bank on Monday told mortgage brokers it was withdrawing all pre-approvals for mortgages to people with a deposit of less than 20% from 4 October.
ASB Bank will be most affected by the Reserve Bank's ruling because it has been doing much more lending to people with small deposits.
In the June quarter, 73% of ASB Bank's total mortgage lending was to people with less than a 20% deposit.
At 30 June, it had approved $6.2 billion in mortgages which had not been drawn down and $909 million of that was commitments to people with less than a 20% deposit.
