Tighter Lending, But Better Mortgage Broker Deals?

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Changes to rules around the LVR has made it more difficult for investors to purchase property in New Zealand. While first home buyers are benefiting from less investor competition, stricter lending criteria and higher prices are making it more difficult for them to buy.

A lack of support and incentives from the major banks are adding even more pressure to those seeking a home loan. Both first home buyers and property investors should now look to mortgage brokers to help them find a better deal and get around all the restrictions hindering them.

The Decline of Incentives  

Generous home loan incentives are slowly disappearing from the banks. Two years ago, home buyers could get up to $7,000 in cash from their bank by switching or taking out a new mortgage. Incentives have always been a major feature of the mortgage market, with banks trying to woo their customers with phones, TVs and cash. But now these giveaways have seemingly gone away.

For example, here are the incentive offers for key banks before April 2015:

●        ANZ - $2,000 for a new lending of $250,000

●        ASB - a “healthy cash bonus” (competitive) for a new lending of $100,000

●        BNZ - $2,000 with a new lending of $250,000

●        Westpac - a “healthy cash bonus” for a new lending of $100,000

●        Kiwibank - $2,105 for a new lending of $100,000

Several banks including BNZ, Kiwibank, Westpac and TSB Bank all quietly removed their offers in April 2015, however almost all would still match a rival in order to keep a customer. As of April 2017, all banks have removed their cash incentive offers, instead offering things like Fly Buys points (BNZ) or lower mortgage cost guarantees (Kiwibank).

Stress Tests

While it’s possible to still get a cash incentive through negotiation, it’s unlikely to be higher than $5,000 and much harder to come by. Banks have argued that customers are less interested in cash incentives when assessing their banking relationships, instead prioritising service, expertise, rates and convenience.

Nevertheless, recent behaviour from banks appears to suggest they are offering quite the opposite, with some banks now charging loan application fees while others no longer help with legal fees or have reduced their contributions. Tighter restrictions mean more home buyers are getting their mortgage applications declined.

Bank stress tests are also on the rise, meaning more home buyers are being squeezed out as they cannot meet the serviceability criteria. Stress tests involves banks adding between 1.5 per cent and 1.75 per cent to their current mortgage rates to determine whether a customer can afford to continue paying their mortgage should interest rates rise.

As the prospect of an interest rate hike is currently quite high, stress-test rates have risen by 0.2 per cent in recent months, with most banks participating.

Get a Better Deal with a Mortgage Broker

The best option for first home buyers and property investors is to work with an experienced mortgage broker. They can figure out which mortgage structure suits your needs, as well as look at a combination of mortgage features and different bank offers such as interest rates, fixed or variable fees and any extra services.

Wealth Health can help first home buyers and property investors obtain great mortgage deals and manage restrictions imposed by banks and legislation. We’re based in Papamoa, Tauranga, but we can come to you! Call Craig on 027 667 2537 or contact us online.