Falling house prices and an increase in the number of property listings is making it easier for some first-home buyers to get on the property ladder, the chief executive of SBS Bank says.

But rising
interest rates and the test rates which banks use to check if borrowers can afford a loan is also tightening up how much can be loaned.

Mark McLean was speaking after the bank revealed an 11 per cent rise in its operating surplus to $61.3 million, driven by higher lending and a rise in net interest income driven by higher interest rates.

The bank’s home lending rose $365m to $4.4 billion as it put a strong focus on first-home buyers.

McLean said first-home lending made up 34 per cent of its new home lending during the year and 85 per cent of those new first-home buyers were located outside Southland.

“We’re delighted that, despite the challenges of Covid-19 and the housing market, we’ve been able to help more than 850 first-home buyers from all around New Zealand into their homes between April 1 2021 and March 31 2022.”

Despite the bank having its roots in Southland, McLean said it was pushing north and had a presence across the country.

“When you look at the geographic distribution of our lending we are pretty much evenly spread across the regions. We do have a good presence in Auckland and the rest of the North Island.”

And it was looking to grow that further.

“We are ambitious. We are simplifying our offering to focus on what we know we are good at. Home lending, particularly that first-home buyer segment, is something that takes us back to our reason for being.”

McLean said last year it launched a first-home combo package which offered a competitive rate, and it had recently launched a digital experience called Skip, which aims to educate first-home buyers about what loan grants are available.

“For young people the first-home loan borrowing process can be a wee bit daunting so we are trying to demystify that.”

McLean said there was clearly a softening in property values, which was creating more listings in the market.

“As a result, some of the properties which first-home buyers used to go and have to compete against investors they have been able to pick up, which means there is more opportunity for first-home buyers.

“Yes, from an affordability of servicing perspective, rising interest rates are impacting.”

He said most banks had had test rates up in the sixes but now they were getting closer to 7 per cent.

“That is impacting people’s ability to service it. But it is the right thing from a responsible lending perspective.”

SBS Bank had recently lifted its test servicing rate to 6.75 per cent.

But McLean warned about making direct comparisons between the banks using the test rates as a range of other factors were also taken into account.

“It is one factor in the outcome.”

Loan arrears remained at historical lows despite the rising cost of living, he said.

“The main driver for that is employment in my view. As long as we remain at full employment, that challenge around increasing delinquencies won’t really crystallise.

“But if we start seeing some businesses struggling and start shutting down and people become unemployed then that will have an impact on the mortgage market. But there is still such strong demand – a lot of businesses, including ourselves, are looking for talented people.”

The bank was hoping to grow its deposit book again after having a fall in deposits in the first half of last year as customers moved money in property and managed funds seeking higher returns.

“That changed in the second half of the year and, as interest rates continue to rise, deposit yields are becoming attractive again.”

McLean said its commercial lending was flat, while the bank was in the midst of exiting the rural lending market as deciding in 2020 it could no longer compete in that space with the larger Australian-owned banks.

“Given our scale, we need to focus on what we are good at and that is on the home-lending front.”