Mortgage borrowers getting creative but banks shift goalposts
June 15, 2017 at 10:09 AM
Auckland, New Zealand: Mortgage Brokers:
Auckland's changing social dynamic is reflected in the co-operative approach many families and first home buyers are taking when applying for mortgage finance, but the banks – caught between a rock and a hard place by many factors outside their control – are shifting the goal posts.
Banks have tightened lending policies beyond anything I have seen in the last ten years, and most of it is driven by the Responsible Lending Code implemented by Government in 2015.
First home buyers are pitching in together with their parents and or siblings to buy a house together – this is possibly influenced by Auckland's growing diversity – but even then it's tough to get finance because the banks look for the weakest link.
Where in the past they might have looked at the big picture, in terms of combined income, they're now asking 'what if?' questions and in a way shying away from issues that may never arise. They want to know if each individual party in the deal can support the mortgage on their own if they had to, which can be impossible," Ms Lockie said.
Increasingly first home buyers are relying heavily on support from parents and family, including equity in parents' property, parents' guarantees or gifts of funds and, where they are eligible, for KiwiSaver benefits, they are accessing those funds.
But it requires at least two incomes to get anywhere in the Auckland market. Many parents are finding that upkeep of their properties, in terms of maintenance, insurance and rates, is getting tougher, so mum and dad are moving in with the children.
You could say the housing situation is bringing families closer together. Many of our new immigrants come from cultures where the whole family was involved in the purchase of a home anyway, and it appears that we're learning from them and following their example.
However, for many it isn't enough – even when the deposit, the equity and the income is there – because the banks appear to be actively looking for reasons why they can't offer finance rather than how they can make it work, which is a 360 degree shift.
Banks are in a tough spot because legislative changes mean they're very exposed and the Sensible Lending Code, in particular, has changed bank attitudes. Mortgage advisers are having to provide much more information because banks are taking an auditor's approach to finance.
People contemplating buying a home need to apply real thought and planning, combined with expert advice, before making their pitch. Here are four tips to keep in mind:
1. Identify what could go wrong with your collaborative arrangement, and plan for it. For example, if you bought a house with your parents, what action could you take if there was a falling out?
2. If you are buying property with family members, agree on what steps you can take to ensure there is no falling out. In other words, work out how can you give each other more privacy;
3. Chart potential interest rate increases and determine whether or not you could cope with the extra pressure on your finances. Put a plan in place for such an eventuality;
4. Think creatively not just about how to get finance by, i.e. cooperating with family members, but have a think about the type of property and its location – rather than just defaulting to the stock standard Auckland house. For example, think about buying a large section with a small house so you can also build a separate 'tiny' house on the property.
I can say that I have seen more changes in the dynamics of mortgage finance in the past couple of years than in almost 30 years of this business. Changing culture, changing bank policies, changing legislation, changes in financial structures and changes in people's personal finances.