The worst of the credit crunch may be over, but things are still tough for home borrowers, according to mortgage advisers.
New responsible lending rules, the Reserve Bank’s reinstatement of loan-to-value ratios (LVRs), which limit the amount of loans banks can make to borrowers with less than 20% deposit, and the rapid rise in Mortgage rates have transformed the lending environment. at the end of last year.
Access to credit was no longer easy, with banks and other lenders applying much greater scrutiny to home loan applications – especially for those with a small deposit.
Mortgage advisers said lenders were turning down loans they would have made before and people had been turned down for reasons such as spending too much on a dog.
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This has led the government to make a series of changes to the Credit Agreements and Consumer Credit Act (CCCFA) lending rules in recent months, despite banks saying they are not didn’t go far enough.
Changes included excluding savings and investments from expenses, removing the requirement for a “reasonable surplus” if a lender applied adequate buffers and adjustments to income and expenses, and guidance on when it was “obvious” that a loan was affordable.
Today, economist Tony Alexander’s recent surveys of mortgage advisers and estate agents suggest that the worst of the credit crunch may be over and buyers’ worries about access to finance could subside.
A net 25% of advisers said banks had become more willing to advance funds in the August survey. In contrast, the previous month a net 9% said banks were more willing to lend, while in June a net 18% said they were less willing to lend.
Alexander says August’s result is the strongest since November 2020, but that doesn’t mean credit availability is now what it was then.
But, with the release of the latest housing market figures from the Real Estate Institute, the institute’s chief executive, Jen Baird, and economists at the SBA have also noted some easing in credit conditions.
Have the changes to the lending rules made a difference and eased the lending environment for buyers?
Financial Advice NZ chief executive Katrina Shanks said there had been a slight easing of lender criteria due to rule changes, but lending had not returned to levels close to last year .
It shows that while the changes are positive, they’re just tinkering and haven’t had a big enough impact on banks to change the situation for many borrowers, she says.
“The issue with the CCCFA is affordability, and until there are changes to the requirements and affordability criteria, there won’t be a huge difference.”
Bank managers and senior executives also shouldn’t be personally responsible for lending decisions, as they currently are under the rules, she says.
“That means they’re very conservative about what they allow their employees to do, and unless there’s a legislative change around that leverage, the lending environment won’t go back to that. it was.”
The lending environment has not eased following the rule changes, acknowledges Mortgage Supply Company director David Windler.
“They’ve made some paths a little easier and given more clarity to the requirements, but that’s completely overshadowed by the steady increase in banking test rates.”
Banks stress test applications at a higher interest rate than the loan rate to ensure a borrower can afford larger repayments if rates rise.
Each time a test rate increases, it decreases the ability to borrow, so a good borrower may get the approval they need for a loan, but it will actually be approval to borrow less , he said.
“The highest test rate is now 8.15%, but interest rates could rise further, so test rates could too, and that has a significant and ongoing impact on affordability.”
Windler says it’s unclear when the lending environment will be further eased, but the Reserve Bank will need to loosen LVR limits at some point.
“It’s because they maintain real control over the availability of credit and the market. Making a smaller number of deposit loans available would help. »
Hastie Mortgages adviser Campbell Hastie said while it wasn’t much easier to get loans, the speed of response from banks has accelerated.
Often that just means banks are saying no much faster than before, but turnaround times for loan approvals have improved dramatically, he says.
“Last year they took weeks to get back to you, and now it only takes a few working days. The market slowdown and lower volume of business are contributing to this.
“Along with that, everyone seems to be getting used to what we have to do under the rules, including the banks who are familiar with the processes involved, and that’s helping.”
Lending market adviser Bruce Patten said there has been some easing in the lending environment, but overall it is minimal.
Indeed, there has been loan relief for borrowers with strong applications and high deposits who are on the low-risk end of the scale, but not for borrowers considered high-risk.
High risk includes those with lower deposits, and that includes many first-time home buyers who often stretch their ability to borrow the maximum amount possible, he says.
“So it hasn’t gotten easier for first-time home buyers, and it won’t until the Reserve Bank eases the LVRs so that more than 10% of lending from banks can be for more than 80% ready.
“Traditionally, first-time home buyers have been about 20% to 25% of the market, but under the current LVR parameters, banks don’t have that kind of capacity for low-deposit loans.”
Despite this, over the past two to three weeks there has been an increase in home loan applications, and Patten expects this seasonal uptick to continue as the weather improves and mortgage rates rise. interest is stabilizing.
Squirrel Mortgages founder John Bolton said people have been very optimistic about all things market for some time, but the mood seems to be improving a bit.
Potential buyers have realized that the world is not coming to an end, and it looks like the interest rate hike could peak around 5.5%, as much of the expected increases in official cash rates are already priced in. , he said.
“Improving sentiment is good for the market because it encourages activity. It also trickles down to banks because it disperses risk for them and strengthens their willingness to lend.
But banks remain strict with their lending, test rates are high which has reduced borrowing power, LVRs are frustrating and CCCFA rules remain problematic, he says.
“It doesn’t make any significant difference to credit approvals at this point, but there may have been a philosophical shift, and that could start to impact the broader environment.”