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Tightening Of Credit Availability Making It Tougher For Home Buyers To Get Loans – Mortgage Survey

Those in the market to buy a new home may have a tougher time getting a mortgage approved, a latest mortgage survey shows.

Feedback from an October survey of 60 nationwide mortgage advisers by Tony Alexander and mortgages.co.nz shows banks are still willing to lend money – but their assessment of how much money can be borrowed is getting tougher. That includes how they view income, expenses, spare monthly cash – and deposit size. Independent economist, Tony Alexander, and mortgages.co.nz collaborate to run a monthly survey of mortgage advisors around the country. Here’s a summary of findings reported in October 2021.

• New lending rules make it much harder for first home and low equity borrowers
• Investor interest continues to decline, but may be sustained by construction growth
• Willingness to lend continues to be strong for standard mortgages
• Three-year fixed interest rates are now the most popular by far

A slight decrease in first home buyer enquiries this month
With Auckland still under Level 3 restrictions, the overall decline in first home buyer interest continues. However, it has almost stabilised with only a net 2% of respondents seeing a further decrease this month. The expected increase as lockdowns lift will be more restrained than last year with tighter lending rules, higher interest rates and a growing possibility of overseas travel.

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Investor enquiries continue to decline
A net 39% of mortgage advisors saw fewer enquiries this month than in August. While this is less pessimistic than the previous month, the impact of the 23 March announcement clearly continues. Rising interest rates may well see this negative trend continue for quite some time, despite easing lockdowns. However, growth in construction and less development restriction in our largest cities are likely to keep investors in the market.

Refinancing enquiries continue to grow
A month-on-month increase in requests for refinancing advice continues, albeit at a steadily declining rate since the sudden jump in June. This ongoing activity is likely driven by the increasing interest rates. Refinancing activity may be further sustained as investors sell one or two properties to reduce debt or switch to other assets.

Willingness to lend remains positive
Despite reports of tighter lending criteria around borrowers’ finances, mortgage advisors are reporting there is still a good willingness to provide mortgages. This is reassuring, given the changes underway to limit growth in house prices, such as tax changes and increasing supply.

Preference for a three-year fixed mortgage continues to grow
Seventy-seven percent of respondents said most people want a three-year fixed interest rate, up from 57% last month. This may be due to recent inflation numbers being higher than expected and the Reserve Bank raising the official cash rate from 0.25% to 0.5%, which signalled the beginning of a longer-term focus. There’s still some interest in the two-year term, but preference for the one-year term is now almost non-existent.

Regional observations
Here’s a selection of the general comments made by mortgage advisors who responded to the monthly survey questions.

• The Whangarei market is still very active with regular sales in the $1m+ category, despite 11 days of Level 3 restrictions this month
• It’s challenging for first home buyers, but opportunities still exist

• There has been an increase in Aucklanders wanting to buy outside the region
• More first home buyer enquiries have been prompted by their landlord selling
• A large number of recent policy changes has created differences between banks, which buyers aren’t aware of so they tend to give up after being declined by one lender
• The less-than-ideal hardship application process is the only option for financially struggling borrowers now that interest-only and mortgage holidays are no longer available
• Fear of missing out is still strong, but is increasingly being replaced with ‘can I afford the payments?’
• Construction finance requirements are tougher, as banks try to minimise time from approval to completion and are wary of construction costs
• Changes to the Credit Contracts and Consumer Finance Act (CCCFA) are impacting sensible credit decisions, delaying credit approval times and creating inconsistent decisions
• At least one main bank is pulling back on mortgage top-ups for funding deposits for non-bank investment property mortgages
• Many buyers say open homes in Level 3 are a nightmare, so they’ll wait until Level 2

Bay of Plenty
• The market is still very busy and prices continue to climb
• There’s a very limited supply of sections
• CCCFA changes are making lenders very cautious, cutting out first home buyers and making owners reluctant to sell as buying will be more difficult
• CCCFA changes mean buyers have to show a mortgage is affordable while maintaining existing living standards, so the traditional Kiwi approach of ‘pay the mortgage and adjust to survive on the rest’ is gone
• One lender is applying a debt-to-income calculation to every application

• No banks are offering high LVR lending to new customers, only existing ones
• One-year fixed borrowers are breaking and re-fixing for three

Hawke’s Bay
• The CCCFA changes are causing delays to standard approvals due to amount of information now required
• There’s an increased focus on applicants’ monthly expenses and ability to service a loan

• Monthly expenses are being looked at in fine detail and discretionary spending costs are being counted as normal expenses
• Lenders are following new CCCFA policy to the letter and not looking at the big picture using common sense
• Some self-employed people with no debt and a healthy deposit are now having their business debt, including Covid-19 assistance and business vehicle debt, treated as personal debt, so they are no longer able to get a home loan
• Pre-approvals are being reassessed under new rules and there is a looming issue of expiring approvals no longer meeting new debt servicing requirements, particularly with construction loans
• Life is difficult for buyers with an ongoing lack of houses for sale, and a chance of pre-approved loans being reassessed and reduced unless buyers can settle in near future
• More people are seeking finance to renovate or add smaller self-contained units to their properties without subdividing
• Some banks now want a registered valuation on almost every new mortgage deal, regardless of loan-to-value ratios, which may be helping them with the new capital requirements that are coming up

• Pre-approved low-deposit first home buyers are struggling to find a suitable home that’s similar to the nice home they’re renting, and they’re not always willing to compromise
• Some couples are moving to Christchurch where homes are more affordable

• Low equity borrowing is almost impossible to get unless buyers meet Kāinga Ora criteria
• Lenders seem to have little appetite for less-than-20% deposit loans for existing properties
• Short-term consumer debt, like Afterpay and Laybuy, needs to be closed for first home buyer or low deposit loans
• First Home Grant price caps almost never work in the current market
• One of the biggest changes, a 150% increase in the required uncommitted monthly income after all regular expenses (UMI), is mainly affecting first home buyers and seems to be due to the Reserve Bank restricting loans to people with less than 20% deposit
• House prices are so high it is hard for first home buyers to buy without help from their parents, as very few qualify for the First Home Grant
• People who previously had loan approval and have committed to new-build homes are now worried they may no longer meet the servicing requirement when they come to settle on their purchase

• It’s now much harder for first home buyers to get a loan with less than 20% deposit
• Approval time is still a big issue with lenders taking 10 or more working days; if they email a question it adds another three days

To learn more
Visit mortgages.co.nz to read or download the free full survey report including graphs. https://mortgages.co.nz/mortgages-co-nz-tony-alexander-mortgage-advisers-survey-october-2021/

About Mortgages.co.nz
mortgages.co.nz has been created to help Kiwi’s looking for home loan information online. The free content available in the learning centre, accompanied by our calculators and advertised rates, will help you to understand the different mortgages available for consideration. mortgages.co.nz is completely independent from any of the lenders and is proudly 100% New Zealand owned and operated.

About Tony Alexander
Tony has been working as an economist in New Zealand since returning from Sydney in 1987. He worked first for Westpac, followed by a share broking firm. Then he spent 26 years with BNZ, with almost 25 years as their Chief Economist. Tony’s focus has always been on translating developments and trends in the economics sphere into words that people can understand.

Mortgages.co.nz and Tony work together on a monthly survey of mortgage advisors. This provides a unique perspective on housing sector developments and, particularly, changes in bank lending rates and policies.

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