Mortgage brokers have seen a “surge” of inquiry since funding criteria to help first home buyers on the property ladder was loosened.

It comes as amendments to the controversial Credit Contracts and Consumer Finance Act
were published in the New Zealand Gazette this week. The changes are expected to take effect in late July.

But experts say this will not be like the “good old days” and have little to no effect as access to affordability tightens.

Finance Minister Grant Robertson announced a two-pronged housing strategy in Budget 2022 that will lift price caps for First-Home Grants and remove all price criteria to apply for first home loans.

The new price cap for using a grant to buy an existing or new home in Rotorua has been raised to $525,000, up from $400,000 (existing) and $500,000 (new).

In Tauranga, the cap for existing homes will go from $525,000 to $800,000. For a new build, it will lift from $600,000 to $875,000.

The grant allows KiwiSaver contributors up to $10,000 towards a deposit on their first home.

The Mortgage Centre Rotorua director and mortgage advisor Praveen Bhati said they had been “flat out” with inquiries from first home buyers since the caps were lifted more than two weeks ago.

Investors had “completely disappeared” from the market opening up more opportunities for first home buyers.

Bhati said he was getting about three to four inquiries a day, “double” the number before the caps were lifted.

“That is something that is going to drive the market for first home buyers massively.”

He said the Bay of Plenty’s property market had also changed “big time” in the last eight months.

“People are getting bargains at the moment, $40,000 or $50,000 off purchase prices is just the normal.

“It is perfect timing for first home buyers.”

Bhati said there had been a few “push-backs” from the banks between December and February after stricter CCCFA rules came into play but banks had stopped going through people’s statements with a fine-tooth comb, picking up spending on coffees and takeaways.

“Before if you were putting $50 aside every week, the bank will take that as a financial commitment.

“That is getting counted towards your expenses.”

Bhati said December, when the new rules came into play, was the festive season and not a true reflection on people’s spending habits.

“It is all about mitigation.”

Earlier this month, the test interest rates banks use to assess if mortgage applicants could service debt if rates rose were revealed.

Some banks were testing mortgage applicants at 7.35 per cent.

Bhati said that would impact how much people could borrow but it was good to have in place in an environment where interest rates were rising.

He said stress tests may be climbing but buyers were borrowing less as they were able to pick up a property for $40,000 or $50,000 less.

“You will still be better off.”

Chief executive and owner of Tauranga-based The Mortgage Lab, Rupert Gough, said they’d had a “huge number” of inquiries from buyers excited about whether they met the new First-Home Grant criteria.

“We got a surge just after the caps were lifted, up by 50 per cent on previous weeks.

“We got a big boost on social media channels.”

Gough said pre-CCCFA the difficulty rating of getting a mortgage was 5 out of 10.
That changed to 9 out of 10 when the changes came into effect in December.

But with proposed further changes to the CCCFA it could move to a 6 out of 10.

“It is not going to be the good old days … but it is going to be significantly easier.”

Harry van der Merwe, from Hello Mortgage and Insurance Advisers in Rotorua, said inquiries had increased since the grants were lifted.

“It has started to trickle in. There is a lot of inquiry about what the banks are looking at now. We have been getting calls and questions.”

He said affordability was still calculated by the banks.

If a person needed to borrow 80 per cent the buyer needed to have an uncommitted monthly income of about $2000, he said.

“It is a hard one. We have still been seeing some inquiry from first home buyers but to get a home for them is still hard.”

Rapson Loans and Finance owner Chris Rapson said he had not noticed any specific upswing in inquiries as any lift in price caps was swallowed by the rise in construction costs.

“If people are going to do something they need to get an advisor and get on to it now because we are in a bit of a hiatus at the moment.”

Rapson said the major impact was the way lenders had to operate under the CCCFA rules.

“The level of scrutiny that deals are placed under is extraordinary.”

Affordability levels based on current income and interest rates were marginal, he said.

“Everything starts with the first home buyer … but we are tapped out of first home buyers.”

To unlock the “next wave” of first home buyers they need to be paid more or prices needed to drop, but the cost of building continued to rise, he said.

“It is a watershed moment. But I am hoping the tap won’t be turned off completely. The big question is how do we ensure the next wave of first home buyers are able to buy? Because that is where it starts.”

Tweaks just a ‘band-aid’

New Zealand Banker’s Association boss Roger Beaumont said proposed tweaks to the CCCFA were a “band-aid” and could mean more loan applications being declined than before.

Under the CCCFA, lenders have to be satisfied the borrower can make repayments without suffering substantial financial hardship.

The new rules imposed stricter duties on all lenders, including banks, around how they made inquiries and verified information to ensure lending was likely to be suitable and affordable.

The rules prompted complaints from consumers and mortgage brokers frustrated that borrowers were being turned down due to how much they spent on takeaways and coffee.

In March, Commerce and Consumer Affairs Minister David Clark announced changes to the CCCFA less than four months after it was tightened.

The proposed changes include clarifying when borrowers provide a detailed breakdown of future living expenses there is no need to inquire into current living expenses from recent bank transactions.

It would also remove regular savings and investments as examples of outgoings that lenders need to inquire into.

The proposed changes would also clarify the requirement to obtain information in “sufficient detail” only relates to information provided by borrowers directly rather than from bank transaction records.

It would also provide alternative guidance and examples for when it is “obvious” that a loan is affordable.

The Minister said, in March, it was making practical amendments to curb any unintended consequences of the Act.

“These initial changes ensure borrower-ready Kiwis can still access credit while we continue to protect those most at risk from predatory and irresponsible lending.”

A broader investigation led by the Ministry of Business, Innovation and Employment and the Council of Financial Regulators into the CCCFA amendments was ongoing.

Beaumont said banks believed the changes resulted in about 6 per cent to 10 per cent of home loan applications that would have been approved before December 1 being declined.

“We don’t think the tweaks will make a big difference for most borrowers.”

That was because most of the existing requirements remain in place, meaning customers still have to provide detailed spending information, he said.

That will result in a more “painstaking process” and more loan applications being declined than before the December rule changes, he said.

Despite the scepticism about the impacts of the new rules, Beaumont said banks were working with customers to see if they were eligible for a loan when the proposed changes come into force.

A more “fulsome” Council of Financial Regulators review of the December changes was expected to be released “soon”, he said.

“That will be an opportunity to make further changes that can both encourage lending to those who can afford it, while still clamping down on unscrupulous lenders.

“Unscrupulous lenders who offer unsuitable credit should be subject to extra compliance, not responsible lenders like banks.”

Kiwibank general manager of home lending Nicole Pervan said the proposed amendments were unlikely to result in any substantial changes for first home buyers.

“As a whole, the changes do not address key pain points such as the fact that banks will still need to collect and review information from most customers to assess expenses.”

Pervan said the December rules made it more time consuming and challenging for customers who need to provide more information and jump through more hoops.

“Since the end of last year, we have seen a decline in lending applications.”

ANZ senior manager of external communications Briar McCormack also said the proposed changes were unlikely to materially address the impacts on borrowers.

“We are waiting to hear on the outcomes of the investigation by the Council of Financial Regulators, which is expected soon, and remain hopeful that further changes will be recommended.”

How to speed up the application process:

• Check you have 90 days of bank statements for the account or accounts used to pay expenses (this could include a credit card too).

• Get evidence of your income. If that’s in your bank statements – that is perfect, otherwise pay slips, employment contracts, or other documents are needed.

• Electronic copies of evidence are preferable and will speed up the assessment process.

• Banks will need to check how much customers spend in a range of categories, like paying off debts, and living expenses like food, utilities, travel, etc.

• Customers should also have a think about what their current expenses are, and how they could (or should) change after they receive the lending.

• It is a good idea to regularly assess your financial wellbeing – having less debt and more spare money will put you in a stronger position.

Source: ANZ