New Zealand bank lending policies are changing rapidly, with huge variations among major lenders. Since the shock from Covid-19, borrowing becomes harder for some people, but borrowing cost has gone down and people may be able to borrow more if they are banks’ ‘perfect’ customer. As mortgage advisor, we’d like you to keep you updated about these changes so when you plan to borrow for home loans, you can plan well and have the best chance of approval. Here is the quick recap of these changes in recent weeks:

Important lending policy updated in October 2020

Video Timeline:

1. Home loan interest rates dropped again  – 00:21

2. Some banks have improved their turnaround time – 01:39

3. Some banks are suspending home loan pre-approval – 02:38

4. Some banks stop considering overseas income in mortgage application – 04:10

5. 80% LVR becomes difficult when the property has the potential for redevelopment – 05:40

6. Apartments sell slower than before – 07:12

7. Banks’ reduced lending appetite for customer who are 50 or older – 08:43

1. Home loan interest rates dropped again

New Zealand mainstream banks have cut their interest rates recently over the last two weeks. For example, the best current one-year rate across all Australian banks is 2.44%, which was 2.49% two weeks ago. It may not seem like a big reduction, but look back over the last 12 months, you’ll notice big difference in rates when your loan comes off to the maturity date.

Will the home loan rates drop further?

Based on what we’ve seen in the previous years, November typically is the month that banks start their interest rates competition. We’d expect the rates to go down further before Christmas. So, if your home loan is going to re-fix in one month, it’s probably a good idea to wait and see if you can get a better rate.

On top of that, most bank economists predict the OCR will become negative by April next year. If it happens, then the interest rates will be even lower.

2. Some banks have improved their turnaround time

A longer time required to process home loan applications due to Covid-19, couple with hot property market sales activity, have made turnaround time worse than ever in 2020. Banks were understaffed, causing some applications to be delayed to at least two weeks, some banks can take four to five weeks.

We recently noticed some banks, including ANZ and BNZ, have accelerated their processing time. The market has sprung back to life, and these banks have come back to their normal response time (a few days). Whereas other banks are still struggling.

3. Some banks are suspending home loan pre-approval

A home loan pre-approval gives you peace of mind when you start house-hunting, by letting you know exactly how much money your bank is going to lend you. It helps you move quickly when you find your dream home, and more importantly, it also becomes an essential step if you go to auctions.

However, due to the strong sales activity in the market, banks are experiencing a high volume of requests. Bank of China (New Zealand) currently close home loan pre-approvals. BNZ can still assess pre-approvals, but only for their own customers. Otherwise, they only open their doors for live deals. A live deal means you’ve signed the Sale and Purchase agreement on a property with a finance condition, or refinance application.

Many borrowers go to Bank of China for approval is because the bank can lend them much more than the mainstream banks, but now they’ve been locked out. There are still some banks doing pre-approvals. We believe this is the temporary measure and we’ll let you know in the first place if they reopen the pre-approvals.

4. Some banks stop considering overseas income in mortgage application

Recently we submitted a home loan application to ANZ, for example, and found they stop considering overseas income unless the application has a co-borrower (such as their family member) who resides in New Zealand and have local income, then that overseas income will be considered but may be shaded by some percentage.

The good news is, some banks still consider your overseas income if you’re on PAYE job, but no lending if the overseas income is generated from overseas businesses. However, we do have solutions even if you are in that category. There are some primary non-banks who provide home loan products can consider overseas business income and the interest rates are not too high compared with the main banks. Depending on the lender and merits of the application, you will be looking at 4% -5%.

So when your bank says no it doesn’t mean you can’t get the home loan. Not only do we have access to lots of bank options, but we also have a community of non-bank lenders for a custom solution if you don’t quite fit the bank’s box. Just talk to us.

5. 80% LVR becomes difficult when the property has the potential for redevelopment

Some banks are taking a conservative and cautious approach on lending against the property that has a redevelopment potential (over $1.2 million in particular) – may lend on a reduced LVR.

For example, recently we had a client who had a pre-approval for 80% LVR on purchasing a rental property. But when the client was trying to purchase the property that had a redevelopment potential (that wasn’t their intention to develop), the bank could only lend them 70% and the client can’t have interest only term. They must start paying principal from day one.

This is not the single case and we've seen quite a few recently. It’s the first time we notice that banks reduce their appetite on lending against the property that has redevelopment potential, and consequently they tighten the approval outcome such as reduced LVR or no interest only term. Pre-approval doesn't guarantee that you can buy any property. Borrowers need to check with the banks or advisors before going unconditional.

6. Apartments sell slower than before

The apartments in New Zealand are selling slower than before, fetching low prices at auctions. If it’s not necessary for you to sell your apartment at this stage, you’d better defer the sale. But if you have to sell it now, consider selling by negotiation rather than by auction, which makes your apartment exposed to a wider range of potential buyers.

Apartments are often more affordable than houses in the main cities, and generally offers good cash flow / high rental yield. However there are more risks involved when purchasing an apartment as an investment which we covered in one of our previous articles. It doesn’t mean you should not invest in apartment - if you can find a bargain, it’s maybe the best time to invest in apartment, depending on your situation and your strategy.

7. Banks’ reduced lending appetite for customer who are 50 or older

Securing a home loan approval is a bit challenging the older you get. Although lenders cannot discriminate based on your age, NZ banks must follow Responsible Lending Code and be a responsible lender, which means they need to make sure your debt is fully paid off at the time of retirement, otherwise they are not responsible lender if you still have loan repayment burden at retirement.

If you are aged 55 or over at application or 75 years or over when the home loan matures, banks need to have good understanding in regards to when you plan to retire and how you plan to repay the lending facility in full or continue to meet repayments when you retire.

Banks become increasingly selective, and it’s better to seek advice from your mortgage broker as soon as possible, to improve your chance of home loan success. 

Prosperity Finance – here to help

We are mortgage broker in New Zealand. We can assess your situation for free and give you an indication of how much you can afford to borrow. Call us at 09 930 8999 for a no-obligation chat with our adviser. 

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Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.