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Advisers face interest-only lending restrictions

Leading New Zealand mortgage brokers have voiced their concerns about tightening restrictions on interest-only loans, as Australian lenders clamp down on the products.

Tuesday, March 27th 2018, 6:00AM

by Dan Dunkley

Brokers have noted an uptick in cases where customers have been unable to roll-over or get new interest-only facilities. IO facilities are commonly used by property investors.

Kiwi advisers say established customers with existing facilities have been put through stringent new servicing tests, and later rejected. It comes after the Australian Prudential Regulation Authority (APRA), enforced a limit on Aussie lenders issuing interest-only mortgages last year. APRA allows up to 30% of a bank's loans to be interest-only. Interest-only lending has plunged in Australia since. 

The Advice Group’s Stephen Wilton says pressure from Australian regulators had forced banks to restrict interest-only products in New Zealand: “Lenders are putting entire lending portfolios through a principal and interest repayment [calculation] at an inflated interest rate, significantly inflating the shortfall required to get these things servicing on banks' calculators. They are getting declined, and the banks are telling us the client can’t afford it.”

Wilton says the issue is “prevalent” this year. He adds: “We had a problem where the bank declined a proposal for a client to sell their property and pay down their mortgage, because they apparently couldn’t afford the mortgage they’d already got.”

The Mortgage Supply Company’s David Windler says there is “ongoing tightening”, particularly with interest-only revolving credit facilities.  He adds brokers were faced with extra paperwork to renew the loans: “Most banks have clamped down on accessibility. The primary reason has been the fact a number lenders are short on capital.”

Windler adds: “Our property investor clients are used to interest-only products being granted and extended on an ‘as-required’ basis. Now we have a situation where if you come to the end of an interest-only period you have to provide a full application. It has caused additional work for advisers.”

Squirrel’s John Bolton says credit conditions have “tightened”. Aside from the challenges in securing interest-only loans, Bolton said banks were re-assessing investors’ financial health when they sold assets. He said a bank had recently taken all of the proceeds from an investor's asset sale to pay down debt elsewhere in their portfolio.

Bolton adds: “It is not to say we can’t keep clients on IO, but it takes more work. In the past you’d roll over the customer and it would be job done. Whereas now banks require credit reviews, and are looking for statements of position to get approved to extend the interest-only period. If you’re an adviser, whenever you’re doing a loan these days, you should put it on interest only as long as possible.”

Tags: Mortgage Supply Squirrel

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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

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