Banks should step up
Buyers are stuck on the sidelines because of tight rules, brokers say. Susan Edmunds reports.
Mortgage advisers say banks are making it tough to get loans approved – and it’s leaving frustrated buyers on the sidelines.
Reserve Bank data shows there was $2.7 billion in new residential mortgage lending in April, compared to $5.5b a year earlier.
While the rate of loans issued in April will be reduced by the lockdown stalling settlements, brokers said a shift to level 2, then 1, had not meant a return to business as usual.
Glen McLeod, of Edge Mortgages, said banks were still assessing new applications against test servicing rates of 6 per cent or 7 per cent.
This is the rate used to determine whether a borrower could afford repayments if interest rates were to increase. But it has not moved much as interest rates plummeted.
‘‘The servicing rate is about three times the special rates the banks are offering. That’s definitely a frustration.’’
Another adviser, Karen Tatterson of Loan Market, said those servicing rates being significantly higher than retail interest rates meant it was difficult to get lending.
‘‘I understand they work from a responsible lending perspective, but there must be something they can do to assist with lowering their servicing ratios,’’ she said.
Not cutting serviceability rates to reflect changing longterm expectations of lower interest rates was making it hard for first-time homebuyers, she said.
McLeod said while the Reserve Bank had cut loan-tovalue restrictions for a year, that had not meant much change at retail bank level.
‘‘Through Covid-19, everyone has had to tighten their belts and hunker down into what is probably the new normal.
‘‘Banks haven’t really lost anything. They might have put some of their clients on holidays but they are still getting the interest, plus interest on top of that. They’ll benefit from that for years to come. They haven’t helped the economy kickstart again.’’
McLeod said banks weren’t making it easy for first-home buyers to get started. ‘‘We have to stimulate the market somehow.’’
One Hamilton woman said she had been a customer of ASB for 16 years when she made an application for a home loan recently. She wants to buy a home in Morrinsville, Te Awamutu or Otorohanga.
She was told by the bank that it could only offer
$320,000 and at an interest rate of
5.2 per cent floating or
3.99 per cent for two years, even though she had no debt and had a deposit saved.
The bank warned her that criteria were tightening for borrowers with deposits of less than 20 per cent.
Brokers John Bolton, of Squirrel, and Bruce Patten, of Loan Market, said banks’ criteria were changing frequently.
‘‘Sometimes it changes from one week to the next, so we are having to keep up with every notification,’’ Patten said.
‘‘It’s really understanding which lenders are using this as a means to grow and which ones are being more conservative.
‘‘It’s no different to what we went through during the GFC. One week a bank will be completely out of the market the next week they are all in again.
‘‘It can be frustrating at times, but we are getting plenty of opportunities from it as well, as customers ask us to navigate through it for them. Inquiry levels are through the roof.’’
Joel Oliver, managing director of SuperCity Mortgages, said banks were being ‘‘very, very’’ conservative. He said it was probably because of the number of people on mortgage holidays.
Tens of thousands have opted to defer their mortgage payments for six months and it was hard to know how many of those would turn into bad loans, Oliver said.
‘‘Money needs to be lent to get things moving. Banks are not doing that at the moment.’’
New Zealand Bankers’ Association chief executive Roger Beaumont said banks were working hard to support households and businesses and helping the economy to get moving.
‘‘They’re very much open to lending where there’s demand. That’s reflected in the fact banks have approved nearly $8b in lending to consumers since March 26, when we went into level 4 lockdown. They’ve also approved loans totalling more than $10b to businesses in the same period.
‘‘When considering loan applications, banks calculate the ability of the borrower to repay the loan at a higher interest rate. That’s because banks are responsible lenders and want to make sure borrowers can still meet their obligations if interest rates rise. It’s very much in the customer’s interest.
‘‘These serviceability rates are reviewed from time to time in line with what’s going on in the market. These rates will vary from bank to bank depending on a number of factors, including their particular risk appetite and exposure to certain types of lending. ‘‘Ultimately it’s all about lending responsibly and doing the right thing by the customer.’’