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Servicing tests hinder home loan market

Tough servicing tests continue to hinder the home loan market, leaving borrowers unable to tap into attractive headline interest rates.

Friday, July 17th 2020, 7:32AM 1 Comment

Economist Tony Alexander, points to "apparent bank reluctance to ease servicing criteria" in the New Zealand market, in his latest weekly report.

However, Alexander believes there could be good news on the way for borrowers, with increased competition in the home loan market, and possible cuts in one and two year rates in Spring.

The independent economist's latest survey of the property valuer market reveals volumes of enquiries for house valuations have risen by 50% in July. The data backs up strong REINZ figures, which revealed a stronger-than-expected property market in June.

"Enquiries for valuations to support the refinancing with a new lender of a currently mortgaged residential property have increased," Alexander said. "But they have decreased for commercial property. This makes sense in that there is no evidence to date of any large decreases in residential property values, listings remain in short supply, and there is plentiful evidence of many buyers in the marketplace."

Yet servicing continues to hamper the borrowing market, despite record-low rates and banks pushing out more attractive headline rates. Advisers say there is a greater disparity between the real rate and the test rate, which is as high as 7% at some major lenders.

Banks continue to put out headline grabbing offers. Yesterday, ASB slashed rates for high LVR borrowers, moving all customers to its 'special' rate.

Advisers welcomed the move, but say banks need to do more to lower their servicing tests, so customers can access financing. 

David Green of AdviceHQ, hopes banks will address the servicing test problem in the coming months  

"The disconnect between advertised rates and test rates still remains, more so with low deposit first home buyers," he told TMM Online. 

Tags: Tony Alexander

« ASB cuts rates for high LVR borrowersASB eases servicing criteria »

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Comments from our readers

On 17 July 2020 at 11:14 am Andy the adviser said:
The (irresponsible)responsible lending code has a lot to answer to. While I agree to it in principle, all logic has been taken away from the decision-making process. I agree that it is not responsible to load a 50 year-old with a 30 year loan. However if the borrower intends to sell and move on within 5-10 years, and use any possible capital gain, then what is the problem?

The code also doesn't take into account the likelihood that incomes are going to rise over the term of the loan (especially a 10-20 year term, yet the banks are still relying on the 7% test rate.

I believe the Australian banks are looking to review their responsible lending code for exactly these reasons.

Banks are one of the few industries that are making money over this pandemic issue. They are even making money on the payment "holidays" (deferrals).

I will support a bank that roles up its sleeves (even preparing to take a short term drop in profits) and actually looks after their customers.

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  • a2: could the milk be starting to turn?
    “Great Fundemental look.I guess in the ASX50 . as long as Aussies still love buying the Dip..its no worries Graeme Adams...”
    4 hours ago by Graeme33
  • It starts with governance
    “Hi David and thanks for your words also. I did read the FMA stuff before the post and also in my first response mention...”
    6 hours ago by gavin austin adviser business compliance
  • AMP reports profit drop amid 'solid' result
    “Sadly, AMP is becoming less and less relevant. Apart from this tiny blip of positive cash inflow, they've been bleeding clients...”
    6 hours ago by Contrarian
  • It starts with governance
    “Good words Gavin - might also mention the FMA publication - https://www.fma.govt.nz/compliance/guidance-library/corporate-governance-in-new-zealand-principles-and-guidelines/...”
    6 hours ago by dcwhyte
  • It starts with governance
    “adviser1 - go talk to Partners Life. they have a great tool to help with this sort of stuff. ...”
    8 hours ago by Tash
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Mortgage Rates Table

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 5.50 - - -
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 3.35 3.85 -
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 2.55 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 3.35 3.49 3.79
TSB Special 4.54 2.55 2.69 2.99
Wairarapa Building Society 4.99 ▼3.55 ▼3.49 -
Westpac 4.59 4.15 4.09 4.49
Westpac - Offset 4.59 - - -
Westpac Special - 2.55 2.69 2.79
Median 4.55 3.05 3.13 3.12

Last updated: 14 August 2020 1:06pm

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