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Fears over tougher servicing tests

Advisers say servicing tests have become even tougher during the Covid-19 crisis, with banks testing borrowers on virus-constrained current income.

Wednesday, April 15th 2020, 10:16AM

Banks are running serviceability tests based on customers' current income, even if they have been temporarily furloughed due to the crisis, or put on reduced hours during the lockdown, advisers report.

Advisers say some banks are not accepting past earnings, or projected future earnings, while calculating serviceability.

The approach has made it difficult for borrowers to complete home purchases, pay for new-builds nearing completion, or refinance mortgages during the Covid-19 lockdown. 

The issue was highlighted in economist Tony Alexander's recent survey of the lending market. 

Alexander reported: "For debt-servicing ability, current virus-constrained income levels are being used, not expected income levels in the future when things are expected to be better. In some cases, anticipated bonuses, overtime, commissions are not being considered for income projection and therefore debt-servicing ability purposes.

"In other words, ability to get a mortgage has been cut for anyone out of work clearly, but also anyone experiencing an income drop or reliant on other than base wages and salaries," Alexander added.

Advisers warn the shift from banks will make it more difficult for borrowers to refinance or take out a loan with a new bank. They say borrowers with existing lender relationships have not been affected so far. 

"It's not really fair," says Q Group's Geoff Bawden told TMM Online. "You can look at it two ways; you can look at their income base at the moment, or realise it is not going to stay that way forever. There's probably a half-way measure they could take."

Glen McLeod of Edge Mortgages warned things could get even more difficult for self-employed borrowers. 

"The banks are not going to take last year's income, and I believe they will have to justify what their income is going to be, how it has been affected by Covid-19, and the assumptions for earnings over the next 12 months," McLeod said.

"This is different to the GFC," McLeod told TMM. "While it wasn't a financial crisis to begin with, there will be a huge financial impact." 

Tags: Lending NZFSG Q Group

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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 - - -
SBS Bank 8.74 7.74 7.09 6.95
Lender Flt 1yr 2yr 3yr
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
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 -
Lender Flt 1yr 2yr 3yr
Westpac 8.64 ▼7.49 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - ▼6.89 6.75 6.39
Median 8.64 7.14 6.82 6.65

Last updated: 11 July 2024 1:26pm

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