By EMMA PAGE – Sunday Star Times
Banks are relaxing their lending conditions as house prices stabilise, making it easier for would-be homeowners to get into the property market.
Mortgage brokers around the country say banks are now willing to consider loan applications that just a few months ago would have been flatly declined.
The changes, which include lending up to 90%, comes after a time when a minimum 20% deposit was the norm and banks were taking a more conservative approach to approving home loans.
Mike Pero Mortgages chief executive Shaun Riley classified the new banking mood as “a slight relaxing” of some criteria and said it was positive for hopeful homeowners.
“I think any time lenders make things a little bit easier is good news for the clients.”
Riley said the gradual change had been noticeable for around three months and included banks taking a more proactive approach, and slight changes in criteria. For example, before approving a 90% loan Westpac used to require the borrower had been employed for three years, but that had recently been dropped to one year.
John Bolton from Squirrel Mortgage Brokers said it was definitely easier to secure loans for clients.
“We’ve noticed a big improvement. We’ve just got so many options out there at the moment in terms of different banks and lenders, so we can pretty much cobble together a solution for most people.”
But although banks were more willing to lend above 80% of a home’s value, they were still being discerning and were only keen to take on good clients with “nice, clean” credit history just missing one mortgage payment, exceeding an overdraft or bouncing a cheque could sour any potential deal. Investors and people trying to consolidate debt were also likely to be out of luck.
“If you are professionals, if you’ve been in your job for a while and you’ve got really good servicing, then pretty much the banks will look at the deal all the way to 90%,” Bolton said.
He had an easy rule of thumb to define the likelihood of a loan being approved: “Take your household income, divide it by two and multiply it by eight and as long as you’re borrowing less than that, it’s a piece of cake all the way up to 95%.”
That meant a household earning $100,000 could potentially borrow up to $400,000 with a small deposit. If a borrower wanted an 80% loan they should divide income by two and multiply by 10.
Massey University banking expert David Tripe was not surprised by the change.
It indicated there had been a slow-down in demand and that banks were seeing less risk in property markets than they did a year ago.
Combined with the fact that many of the predicted job losses had already happened, this provided some justification for an easing of terms and conditions, he said.
But he did not foresee a return to banks lending the full value of properties as seen during the boom years. “I don’t think people are going to be rushing back to doing 95% or 100% loans in a hurry.”
Latest figures from the Real Estate Institute show house prices rose 5% in July, while the median days to sell fell to 36 days (seasonally adjusted) from 40 days last month.
In comments released last week, ASB economist Jane Turner said the data confirmed the recent housing market recovery remained firm and that price declines had come to an end.
The news of banks becoming more willing to lend comes as floating mortgage rates have dropped to their lowest level in 40 years. Last week, Kiwibank was offering 5.79% while BNZ had lowered its rates to 5.85%. But this good news for homeowners was moderated by lifts in fixed-term rates, with ANZ, ASB and Westpac all lifting their two-year rates to 6.55%.
But financial commentator Bernard Hickey from interest .co.nz said while lending may have relaxed, housing was still “vastly unaffordable for most people especially in Auckland”.
If prices did not come down, lower interest rates would not change the affordability equation.
He labelled the move to relax lending as “depressing” and said it meant the country was making the same mistake all over again, potentially getting further into debt, which could damage our international credit rating.
The problem was, he said, that there was no incentive to encourage more conservative borrowing the government was not moving to discourage rental investment by introducing a capital gains tax, while capital adequacy rules meant that banks did not have to put aside as much “precious capital” when they lent against a home.
“Instead of slowing the car down for the corner that is ahead, we are accelerating into it and we hope we’re not going to crash… I fear we’re just going to blast off the edge.”