Making the most of a (slightly) easier mortgage landscape
First-home buyers waiting for their chance to get a mortgage may have slightly improved odds from next year.
On Wednesday the Reserve Bank announced a surprise move to lift the permitted level of bank lending to borrowers with deposits of less than 20 per cent from January 1, from 10 per cent of the total loans on residential property, to 15 per cent.
It is a small change, affecting only a small number of high loanto-value ratio (LVR) loans. But banking experts said lenders would have more flexibility to back good deals.
There are a number of ways that buyers can give themselves the best chance possible of being one of those deals.
Know your numbers
Vince Clark, head of product portfolio in ASB’s retail team said buyers should be familiar with their own financial position. ‘‘Know your income and expenses and have evidence in case it’s needed, especially if you are applying at a bank other than your own.’’
Find out what your weekly repayments will be on the amount you want to borrow and make sure you can demonstrate clearly how that is affordable.
Buyers should also understand how much equity they were willing or able to offer as security, Clark said.
‘‘In terms of the Reserve Bank changes, they are a relaxing of quantitative limits on high-LVR lending so their effect will be to allow a greater volume of such lending as a proportion of the whole. Bank lending criteria is unaffected.’’
Patten said applicants should have everything prepared before they began, including bank statements, proof of income, confirmation from their KiwiSaver provider if they needed it, and evidence of their savings history. ‘‘First-home buyers often come unprepared.’’ Show good account conduct ‘‘Be mindful that banks are very much looking at spending habits, to see what you are spending your money on,’’ Patten said. ‘‘It’s important you’re not wasting your money, particularly at SkyCity and things like that. Cost of living has become an extremely important factor.’’
Patten said the Reserve Bank move could lead to a return to preapprovals from the banks.
Another mortgage adviser, Campbell Hastie, of the Go2Guys, said poor account conduct was the number one reason he saw firsthome applications rejected. ‘‘If you’ve missed a few bill payments or had an unarranged overdraft, that’s a deal-killer. It says you’re not good for the money.’’
High levels of consumer debt were also a problem. ‘‘One lender would say if you’re applying for a 90 per cent deal and you have more than $5000 in consumer debt, forget about it, we don’t care if you’re good in every other area.’’ Be realistic
Patten said home-buying hopefuls should not try to borrow more than they could comfortably afford. ‘‘Just because an online calculator says you can borrow $1.2 million, it doesn’t mean you should try to.’’
Clark said honesty when applying was important. ‘‘A home loan is a long-term commitment and it’s essential that you are not over-burdened with debt and can afford your repayments now and in the future.’’
Westpac head of product Shane Howell said banks would want to see that buyers could afford their loans over the long term.
‘‘You want to set yourself up for success. It’s not just what you can afford today but if your circumstances change in the future, if you have kids or other family commitments or education . . . make sure you’re looking at the long term and that it fits with what you are wanting to achieve.’’
He said Westpac would use its extra capacity to help its existing clients first. Be prepared to wait
Glen McLeod, director of Edge Mortgages, said about 5 per cent of the loans he saw were rejected by the bank.
‘‘We do our homework first and wouldn’t present to the lender if it was a clear no-go.’’
But he said brokers turned away as many as 20 per cent because the buyers were not yet ready.
‘‘It may not work straight away so we may give options like parents completing deeds of acknowledgments of debt or selling a car or further savings.’’
Some banks had already imposed stricter rules than they had to. ANZ has had a limit of 85 per cent even for the quota of loans it has been allowed outside the Reserve Bank’s rules. A spokesman said it had not yet decided how the change would affect its policies.
Infometrics chief forecaster Gareth Kiernan warned that buyers should not expect a flood of loans to be made available.
‘‘From about February 2016, the banks were tightening up on lending above 80 per cent anyway – and remember that, in November
2015, the Reserve Bank had actually relaxed the restriction from 10 per cent to 15 per cent of lending outside Auckland,’’ he said.
‘‘There’s been a slight upward trend in the share since the end of
2016, but I suspect that if there is any loosening of banks’ lending policies, that it will be very gradual.
‘‘Although the Reserve Bank’s point about the stock of mortgage lending having improved is true, with the stock of mortgages with a high LVR having decreased, banks will still be wary of approving new high-LVR lending given that housing still appears significantly overvalued and there is thus scope for house prices to fall.’’
There are other ways to get a loan with a small deposit: Welcome Home Loans allow deposits of 10 per cent to those who meet income and house price caps and non-bank lenders also offer solutions.