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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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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 3.15 3.25 3.39
ANZ Special - 2.55 2.69 2.79
ASB Bank 4.45 2.55 2.69 2.79
Bluestone 3.49 3.49 3.49 3.49
BNZ - Classic - 2.55 2.69 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.15 3.29 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
Lender Flt 1yr 2yr 3yr
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
Heretaunga Building Society 4.99 3.85 3.95 -
HSBC Premier 4.49 2.45 2.60 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.45 2.65 2.79
Kainga Ora 4.43 2.93 3.07 3.24
Kiwibank 3.40 3.30 3.54 3.54
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.55 2.79 2.79
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.35 2.99 3.35
SBS Bank 4.54 3.05 3.19 3.25
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 2.55 2.69 2.75
The Co-operative Bank - Owner Occ 4.40 2.55 2.69 2.79
The Co-operative Bank - Standard 4.40 3.05 3.19 3.29
TSB Bank 5.34 3.29 3.45 3.59
TSB Special 4.54 2.49 2.65 2.79
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 3.15 3.29 3.39
Westpac - Offset 4.59 - - -
Westpac Special - 2.55 2.69 2.79
Median 4.55 3.00 3.13 3.02

Last updated: 21 September 2020 10:48am

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