Protest at home loan ‘stranglehold’

Banks are registering ‘‘mortgage priority’’ against borrowers’ homes of as much as three times the size of their home loans, a former banker has told Minister of Commerce Kris Faafoi.

And Balvant Singh, who worked for ASB and BNZ and now operates second mortgage lender Matrix Capital, wants a law change to end the ‘‘stranglehold’’ on homeowners’ financial lives that he says the practice gives to banks.

He believes most people with home loans have no idea banks have registered large priority mortgages against their homes.

Someone with a mortgage of

$300,000 may have a priority amount of $600,000 or even

$900,000 registered against their home by their lender, though that doesn’t effect the amount they actually owe.

Faafoi asked for public submissions on his plans to overhaul lending laws, determined to reduce the harm done to vulnerable borrowers by exploitative lenders, and Singh used the opportunity to make a submission calling for a fairer deal for home loan borrowers.

The priority amount is the maximum a mortgage lender can recover from a borrower in the event of a mortgagee sale.

But Singh believes setting priority amounts at such elevated levels allowed the banks to take a stranglehold on the loans market, making it all-but impossible for people to shop around for a second mortgage.

That, in effect, left borrowers wanting more money, no option but to borrow from their current bank, or taking a higher-cost unsecured loan from a different borrower.

‘‘When a customer raises a mortgage (for example $300 000), the banks create a mortgage amount of two or three times the loan amount ($600,000 or $900,000),’’ Singh told Faafoi.

As a result he said: ‘‘Many consumers have equity in their homes but are unable to raise a second mortgage loan simply because of the stranglehold of the banks by taking a mortgage priority of such large amounts.’’

In some cases they end up using high-cost loans from second-tier lenders like finance companies, or credit cards, to fund things like home renovations, he told the minister.

The New Zealand Bankers Association (NZBA) denied priority amounts far exceeding home loans were preventing the development of a second mortgage market, and said if borrowers had concerns, they should speak to their bank.

Antony Buick-Constable, acting chief executive of the NZBA, said priority amounts were not covered by the Credit Contracts and Consumer Finance Act, and so ‘‘would be out of scope’’ of Faafoi’s proposed reforms.