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The future of pre-approvals in doubt

ASB’s decision to withdraw pre-approved loan applications is a very company specific issue, but highlights that this practice is likely to stop anyway.

Friday, September 27th 2013, 3:12PM 3 Comments

ASB’s move hasn’t been copied by any other trading banks which indicates that the company had such a large pipeline of pre-approvals that they became unmanageable under the Reserve Bank’s lending restrictions which come into force next week.

Under the restrictions banks are allowed to write no more than 10% of their loans each month with deposits of less than 20%.

This measure is counted at the time the loan is approved rather than at drawdown meaning that ASB could well breach the new rules in their first month.

The maximum penalty for breaching the rules, or even the “spirit” of the rules, is that the Reserve Bank could withdrew the errant bank’s licence to operate.

Banks we have spoken to say that they are entering into administrative nightmare territory and none of the banks have the ability to measure these loans.

With such pressure pre-approval for home loans is an amenity  which is likely to disappear from the market, something that banks and brokers may both be happy about once the dust settles. Under the process all the work in making the application is done, yet the large majority of pre-approvals don’t get drawn down.

This is cost for banks and brokers.

The other frustrating thing for lenders is that often a borrower will get pre-approvals from more than one bank.

Prosper Group boss Geoff Bawden told the NZ Mortgage Magazine’s Round Table that pre-approvals are nothing but a licence to shop.

« RBNZ 'learning by doing'LVR restrictions 'could spark complaints' »

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Comments from our readers

On 30 September 2013 at 1:10 pm Amused said:
Those of us who have been in this game for a while now and frequently handle complex lending scenarios for our clients will still be wanting pre approved loans thank you very much. The first scenario that springs to mind would be something called an "auction" where the client is going in cash with their offer. Its simplistic to think that the days of pre approved loans are over.
On 4 October 2013 at 3:02 pm JoeDuke said:
Since Banks' Mobile Lending Managers hand out such with "gay abandon" and without due diligence and explanation to the obvious limits therein, they should reduce such practice. I recall, in the mid 90's in Australia, the Banks introduced an Application Fee to process such, thus negating the clients visiting all in-sundry to gain "several" pre-Approval Letters, as they've done here for many years.
On 4 October 2013 at 3:09 pm baziled said:
Touchez! Illogical to bring this up at any time as pre approvals are here to stay for many reasons. The argument (indeed the headline) I think is too specific to one area of lending and merely there as a headline. Piffle in my opinion.

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.14 6.79 6.65
ASB Bank 8.64 7.14 6.75 6.39
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.14 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.74 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.89 6.55 6.35
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.74 7.35 6.99
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.65 7.25 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.09 7.59 7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.74 ▼7.09 ▲6.95
SBS Bank Special - 7.14 ▼6.49 ▲6.35
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.14 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.84 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.24 6.75 6.39
Median 8.64 7.19 7.17 6.65

Last updated: 12 June 2024 4:04pm

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