Banks get tough on home loans

NZ lenders now paying closer attention to spending habits of potential borrowers

Mortgage brokers say banks are taking a closer look at whether borrowers can afford to meet home loan repayments, with one bank asking for a written declaration that the lending is responsible.

Lenders have had to adhere to a responsible lending code since June 2015 which says they must make reasonable inquiries into a person’s situation to ensure debt repayments do not cause “substantial hardship”.

But more pressure has come on the banks in the wake of last year’s Australian Royal Commission into misconduct which found the Australian banks were highly reliant on average household spending data to base their lending decisions on rather than using spending data from the individuals applying for the loan.

Bruce Patten, a mortgage broker at Loan Market, said banks here want more information on people’s spending habits than ever before.

“There is definitely more pressure on home loan servicing. That is going to be the biggest factor in lending over the next 12 months,” he predicted.

All the banks were asking brokers to confirm lending was being done responsibly but Westpac is the only one with a declaration form.

The Westpac form prompts both its in-house staff and external brokers to ask borrowers if they anticipate or plan on any changes in their life that would make it harder to meet their repayments. It also asks if the borrowers are over 55 at the age of application, or will be over 75 when the home loan matures.

A Westpac spokesman said the document, which it rolled out internally and to brokers in September, was used to make sure its lenders had the right conversations with customers.

“It is not used to calculate eligibility for a mortgage.”

Regarding the age question the spokesman said it was important that borrowers who may be due to retire during the term of their loan consider how they would manage repayments as their income changes through and after their working lives.

“All lending is conducted on a caseby-case basis. Our mortgage approval criteria do not include age,” he said.

Patten said some clients were already questioning the closer scrutiny. “They say: ‘I never got asked this last time. Why do they need to know that’?”

Kyle Moritz, a mortgage broker at Squirrel, said serviceability was key but all the banks interpreted their responsible lending obligations slightly differently.

“They want to be able to see you can afford a mortgage.”

Moritz said it was usually people over the age of 50 that were questioned about having a longer term for a mortgage.

“It is usually people over the age of 50,” Moritz said, “which is fair enough. Most people want to pay their debt off before retirement.”

Moritz said certain banks were getting nervous after criticism of responsible lending practices in Australia’s Royal Commission into misconduct in the financial services industry.

Patten said banks wanted to see a savings history and looked favourably on those whose combined rent and weekly savings might be similar to what they would pay for a mortgage. “We get a lot of people who come in and say we can afford $750 a week [in mortgage repayments] but they have rent of $450 a week and no savings.”

That won’t fly if you have a deposit of less than 20 per cent, Patten said.

In Australia there have been media stories of people being turned down for home loans because of their use of Uber rides or UberEats.

Patten said would only happen if a person’s spending was excessive.

“If you are spending $300 to $400 a week on UberEats how can you sustain a mortgage when you are paying so much for takeaways?”

He predicted a time when banks would sweep up data from a person’s accounts to see what level of disposable income they had left.

Patten said people looking to borrow could help themselves out by doing a budget and understanding where their money goes. Only around one in 10 people he saw had that already prepared.

If you are spending $300 to $400 a week on UberEats how can you sustain a mortgage when you are paying so much for takeaways? Bruce Patten