When Yorick Nicholls’ pre-approval for a home loan was renewed, he was shocked to find that the bank cut the amount he could spend on a property by 15%.
The previous pre-approval had been in place for three months, but he and his wife had failed to find a property and therefore had to reapply. “Our first shot didn’t give great results. Unfortunately, this is a very untimely renewal.
Their new pre-approval was issued shortly after the introduction of changes to the Law on Credit Agreements and Consumer Finance, which require banks to be more careful that borrowers can repay their loans.
Many borrowers report facing a number of new questions and inquiries about the conduct of their accounts, and brokers have described the results as a “credit crunch”. More than 90 percent said banks were getting tougher in granting external loans.
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“We didn’t know how we were going to be affected and we were absolutely hit in the gonads,” Nicholls said.
They are now capped at a maximum of $ 800,000 – which he says would likely require them to look for property outside of Auckland.
The couple have a down payment of 57% of that amount, but Nicholls’ wife is completing a period of maternity leave, so they are assessed as having only one income.
Nicholls said they took pride in their ability to save money, but were now treated like rookies, when asked about more than $ 1,400 taken out of savings to buy a kayak.
“We started our savings overseas in my home country Vanuatu so we had to face different circumstances but other than that we don’t spend much unless we budgeted for it. saved for that… we are proud to be in a good position and being quite careful and even with that we got a massive reduction. “
He said they were already barely keeping up with rising house prices with the previous amount they were allowed. “It was hard enough trying to navigate the market on a budget, now it’s a devastating blow.”
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It is more difficult than before to get money from the bank in many cases.
It would make them look outside Auckland, he said, which would take them away from their families. “We said first-time homebuyers are the most disadvantaged and here we are chopping them on their knees… there is very little we can do with these so called peanuts compared to this situation.”
He said he was now asking his broker how much control they might have over the situation and whether saving more money would put them in a better position the next time their pre-approval was reassessed.
Along with the modification of the CCCFA, the Reserve Bank tightened the loan-to-value ratio rules, which reduced the ability of banks to lend to borrowers with low deposits. This has prompted some to revoke pre-approvals.
Wellington’s wife Kylie, who has asked that her last name not be used as she is still trying to secure funding, said it has left her and her partner in an awkward position.
They own their own house and rental property, but a $ 1.4 million loan has been approved to buy a third, with the intention of selling the house they lived in.
But then that pre-approval was withdrawn and they had to scramble to find funds to fund an unconditional offer they had made. “Yesterday they said ‘no, I’m not giving you a dollar, that’s not our problem.’ They put me through a very painful assessment and really made me feel like I was in the bottom of the barrel – you are spending too much on your dog, you don’t have enough money. [But] we have a lot of equity in these two properties, we have the money.
“I was refused because I have a credit card with Gem and Q Card, no debt but because it is open which is why it was refused.”
Another woman said she and her children could be forced to leave their eight-year-old home by the rules.
“I paid off the mortgage as a single mom for the past two years and requested that the mortgage be transferred from the joint loan with my ex, who does not contribute, to my own name. The bank has a hard time approving me even though I have a clear payment history and no other debt. If I am forced to rent, my living expenses will increase.
In Christchurch, Lorelee Walker and her partner are selling their first house and moving to another.
But she said they were under scrutiny even though they had a mortgage with the bank for 12 years.
“It took about three weeks for things to move through a broker – they came back to us twice wanting more information and more information. What we originally provided was not good enough … the review is beyond a joke. It makes us feel like we’re being treated like first-time homeowners with no banking history.
They have now been approved with conditions, including requiring more proof of her overtime earnings and proof that she had terminated a health insurance policy.
“We found the process when we first bought a home quite stressful, but it was the next level. “
She said they were also told they were unlikely to be able to get help with a security deposit between when they had to offer one for a new property and when their existing home. has been sold.
Another reader said he started a new job paying $ 40,000 more than his previous role. He and his wife managed their mortgage with up to $ 1,500 a month in excess.
“I needed a car as I was going from a company car to no car, I was challenged by my wife to use Afterpay to buy a $ 100 jacket, despite the fact that she has been reimbursed and no further deductions are made. “
New Zealand Bankers Association chief executive Roger Beaumont said the changes to the CCCFA meant that anyone wishing for a loan had to provide their bank with more information about their financial situation, and the bank had to do more to verify that this information is correct.
“The change in law was aimed at helping vulnerable consumers avoid unaffordable debt. It also affects people looking for home loans, where borrower rates are traditionally very low and unable to repay. It still does, but the change in law has tightened the ability of banks to lend.
“Banks are responsible lenders and take their obligations under the law very seriously. The new rules are quite strict and there is much less flexibility or leeway for the lender than before. “