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New Zealand: mortgages scarce

Catherine Deshayes

Mortgage lenders in the land of the long white cloud have tightened their lending criteria even further, making it far more difficult for potential property buyers to obtain a mortgage...

New Zealand is not immune to the credit crunch that's sweeping the globe.

Mortgage brokers say banks have reduced loan to value ratio limits, increased margins for riskier loans, tightened the pool of professions that can be lent to and in some cases removed fixed rate mortgages altogether.

Industry experts believe that mortgage lenders are soon going to be insisting on a 20 per cent deposit and even applicants with excellent credit ratings are being turned down, whereas previously they would have been snapped up.

People who are freelancers so aren't on a steady income are finding it virtually impossible to get a mortgage, even if they have good payment records. A low-doc, or ‘risky' loan is granted to a borrower without documentation of income, which means they are often used by self-employed borrowers or those operating as traders. Lenders are now asking for 100 per cent confirmation of income.

ASB's Sovereign dramatically tightened its rules for risky lending through brokers this week, imposing a Lenders Margin Insurance fee on all risky loans and ending risky lending for builders, real estate agents and property developers.

Mortgage broker Asteron withdrew all but its floating rate from the market as funding dried up for fixed mortgages from its wholesale funder.

Banks are requiring people to provide more documentation and equity than ever before and are effectively 'rationing credit,' according to Professor Laurence Murphy of Auckland University's property department.

This is confirmed by one of New Zealand's leading banks. BNZ, who have said they prefer borrowers able to provide 20 per cent deposits.

Kiwibank's 8.49 per cent rate for its special two-year fixed-rate mortgage only applies to borrowers with 20 per cent equity, as does the National Bank's 8.3 per cent rate for its special 30-month fixed-rate mortgage. Much more of the rationing is done behind the scenes.

Net new mortgage lending collapsed to £82 million in July of this year from £365 million in the same month a year ago.

Foreign investors

In the past, many banks across New Zealand were keen to lend to foreign buyers. When assessing overseas people for a mortgage, banks split them into three categories. The first, mortgage category one, is permanent residence, which means that banks and other lenders will provide you with identical mortgage facilities to New Zealand citizens. This includes loans up to 95 per cent (or more) of the value of the property you are buying.

Mortgage category two is for those on a work permit, which means that banks or lenders will require more commitment from you than they would from a permanent resident. This varies from the most lenient lenders who require you fund at least 20 per cent of the purchase price to lenders with stricter rules who will require you fund at least 50 per cent of the purchase price.

The message is that if you shop around, you should be able to find a loan to fund 80 per cent of the price of your dream home.

Mortgage category three covers holiday homes. Banks will apply very similar rules to overseas people on holiday to the lending rules applied to people in category two, although these may be a little stricter.

Over the last year, mortgages have been harder to come by for foreigners, who may well be put off by tighter lending criteria. The high interest rates will also intensify the downward pressure on house prices.

Picture by andrewconn