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Banks care more about income than equity

Homeowners who want to tap into their increased equity in their homes are being warned they may be disappointed, unless they have had an income boost, too.

Sunday, July 24th 2016, 9:53AM 2 Comments

by Susan Edmunds

Mortgage broker Christine Lockie, of LoanPlan, said, provided borrowers met loan-to-value restrictions, banks were putting means, income and cashflow first.

"It would appear that many home owners don't want to risk selling their properties if they are unable to replace their existing home within their affordability.

"Instead they're looking to stay put and renovate. However, often increasing an existing mortgage is not easy even when there is good equity,” she said.

"It's all about affordability and how much cash you have left over at the end of the month. Banks will calculate the ability to repay debt at interest rates of, for example, between 4.85% and 7.65% – each bank has its own assessment interest rates," she said.

"The price rises in Auckland and regional areas have diminished the weight that equity used to carry. Added to this are factors like the Responsible Lending Code that banks must abide by. I would suggest that the banks are no longer what we would call equity lenders — it's affordability, income and lifestyle that count."

Broker David Windler, of Mortgage Supply Co, agreed. He said the global financial crisis, when the lending environment had been a bit looser and products “interesting” had shocked the banks back into a focus on income and servicing.

The Responsible Lending Code had reinforced that, he said, and now the banks also wanted to be able to prove to the Reserve Bank that they were lending prudently.

But Darren Pratley, director of the Home Loan Group, said things looked to be changing again.

He said the recent introduction of tighter LVR restrictions for property investors had put the focus back on equity. “The LVR has become whether they can even do the deal or not,” he said.

The banks have been approached for comment.

Tags: interest rates Mortgage Advisers

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Comments from our readers

On 25 July 2016 at 10:13 am Dirty Harry said:
Right. So loans currently at 160% or more of income (mass economy), loan servicing running at more than 60% for a large and growing proportion of borrowers, loans more than 9 times income being common place... please do tell me all about this "responsible lending code".
Time to dig out Olly Newland's book again, Lost Property 2007 edition.
60's boom, then a wool crisis
70's boom, then an oil crisis
80's boom, then sharemarket crisis
90's boom, then Asian banking crisis,
00's boom, then GFcrisis
10's boom then.... take your pick: brexit, USA, Iran, OPEC, Korea, China....
https://youtu.be/h4RyWFYCz1Q?t=4m20s
On 25 July 2016 at 11:26 am stevef said:
Makes a lot of sense. That should always be the criteria for lending. Banks so not want to go through the hassle of mortgagee sales to recover their money. They are also a lot more cautious these days about the value of equity that can fluctuate wildly, much much more than twenty or thirty years ago. In the 1990's the responsible lending code didn't exist but it was by definition the default position when banks forked out the money.

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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
ANZ 5.79 4.45 4.49 4.69
ANZ Special - 3.95 3.99 4.19
ASB Bank 5.80 4.49 4.49 4.45
ASB Bank Special - 4.09 3.99 3.95
BNZ - Mortgage One 6.50 - - -
BNZ - Rapid Repay 5.95 - - -
BNZ - Special - 4.05 3.99 3.95
BNZ - Std, FlyBuys 5.90 4.69 4.59 4.79
BNZ - TotalMoney 5.90 - - -
Credit Union Auckland 6.70 - - -
Credit Union Baywide 6.15 5.20 5.25 -
Lender Flt 1yr 2yr 3yr
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 - - -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.70 4.85 -
Housing NZ Corp 5.80 4.69 4.79 4.79
HSBC Premier 5.89 3.99 3.99 4.39
HSBC Premier LVR > 80% - - - -
HSBC Special - 3.69 3.69 3.95
Lender Flt 1yr 2yr 3yr
ICBC 5.79 3.99 3.99 4.49
Kiwibank 5.80 4.80 4.94 ▼4.84
Kiwibank - Capped - - - -
Kiwibank - Offset 5.80 - - -
Kiwibank Special - 4.05 3.99 ▼4.09
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 6.10 5.10 5.45 -
Resimac 5.30 4.86 4.46 4.69
RESIMAC Special - - - -
SBS Bank 5.89 4.85 5.05 5.49
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 4.05 3.99 4.49
Sovereign 5.90 4.49 4.49 4.45
Sovereign Special - 4.09 3.99 3.95
The Co-operative Bank - Owner Occ 5.75 3.99 4.15 4.35
The Co-operative Bank - Standard 5.75 4.49 4.65 4.85
TSB Bank 5.80 4.55 4.49 4.65
TSB Special - 4.05 3.99 4.15
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.95 4.69 4.79 5.19
Westpac - Offset 5.95 - - -
Westpac Special - 4.05 3.99 3.95
Median 5.89 4.49 4.49 4.47

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