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.
Changes under the Credit Contracts and Consumer Finance Act (CCCFA) from December 1 require lenders to provide records of all their enquiries, including assessment of why they were satisfied the loan was suitable and affordable. For borrowers, this means "some lending which was previously approved will no longer be approved," Banking Ombudsman Nicola Sladden said in a statement.
Former BNZ economist Tony Alexander told Newshub while overall perceptions showed a "good willingness" to lend, amid tighter incoming loan-to-value restrictions, CCCFA changes, and rising interest rates, banks also want to ensure borrowers are prepared for higher repayments.
Debt-to-income restrictions linking borrowing limits to income, proposed by the Reserve Bank, are another consideration.
"There is definitely a tightening of credit availability underway...it is a new world that borrowers are moving into now," Alexander says.
From November 1, deposits of 20 percent or less will reduce to 10 percent of new bank owner occupier lending. And banks want to allow a "big buffer" to ensure that limit isn't reached.
"Strong feedback from mortgage advisers was for first home buyers with a small deposit, just about their only hope of getting a loan was with their existing bank," Alexander added.
Escalating construction costs, which latest Consumer Price Index figures show rose 4.5 percent in the September quarter, meant banks were applying "an extra allowance" for cost overruns when assessing mortgage applications for new-build homes.
A net 2 percent of advisers reported seeing fewer first home-buyers in October - up from a net 16 percent seeing fewer first-home buyers in September.
Overall investor enquiries were still negative, a net 39 percent of mortgage advisers seeing more investors looking for advice than in September. But the degree to which investors were pulling back was less, October's survey showing improvement from a net 56 percent last month.
Following the Official Cash Rate rise to .50 percent in October, and amid expectations of further rises, fixing a mortgage for three years was the preferred option, survey results showed. Over three-quarters (a net 77 percent) of mortgage advisers reported a 3-year fixed rate as the most popular among borrowers, up from 57 percent in September.
Mortgage broker and property investment mentor Luica Xiao sums up bank lending to first home buyers, especially those with less than 20 percent deposit, as "quite tough".
The level of "uncommitted monthly income" (the amount of money left over after all expenses are deducted), has increased across banks, she said.
As an example, one bank's requirement for uncommitted income has increased from $300 per month to $750 per month.
In line with phased out ability to offset interest expenses against income from October 1 (applies to investment properties purchased before March 27), for investor borrowers, assessment of rental income has been scaled back to 60 percent in some cases, Xiao said. This meant a "reduction in borrowing power" for "investors, including 'mum and dad' investors."
In a statement released on October 22, banking ombudsman Nicola Sladden said the incoming CCCFA changes help to protect consumers from unaffordable debt.
Those wanting a loan are advised to allow time for bank discussions (e.g. before an auction date), be patient through the assessment process and to gather recent information (income, debts and expenses). It's also advised they should be clear about the reason for and amount of the loan.
"If you're house-hunting, get in early and find out from the bank what you need to do to prepare," Sladden said.
The Tony Alexander mortgage advisors collated 60 responses from mortgage advisers across the country and is an early indication of market activity. The full October mortgage advisor survey can be read here.
