Getting your accounts in order is important when you're applying for a home loan.
Savvy first-home buyers who use the Government’s suite of incentives and their KiwiSaver could get on to the property ladder with a 5 per cent deposit, one mortgage adviser says.
Loan applications at Kiwibank dropped 35 to 40 per cent in February. Banks told NZME the market had cooled because of high-interest rates and fewer houses for sale but they were still offering cashbacks.
The Mortgage Supply Co adviser Sam Burnett said 2023 started off noticeably slower than previous years and servicing test rates had risen in tandem with interest rates.
“We are seeing loan sizes being restricted by these higher test rates however, this is in some part being balanced by the drop in average house prices.”
February application volumes were back up.
In his view, it presented a period of opportunity for first-home buyers. Lower average house prices combined with access to the Kāinga Ora First Home Loan, First Home Grant, and KiwiSaver could spell good news for some buyers.
“There is potential to buy your first home with a 5 per cent deposit, providing you meet the criteria.”
Meanwhile, loans were rejected for many reasons and affordability was one of the big ones, while lending criteria had tightened.
“The number of people choosing to use a mortgage adviser is growing and I believe this will continue as people choose to seek advice that for most will be the biggest purchase in their lifetime.”
Kiwibank senior product manager Richie McLay said
February’s drop in volume reflects market change and had affected all segments of the market, including first-home buyers, existing homeowners changing properties or investors, he said.
“Higher interest rates will impact the amount customers will be able to borrow and reduces the confidence of new home buyers. It’s not unusual to see a reduction in mortgage applications when there is a period of higher interest rates as it causes customers to think twice before considering selling or buying homes.”
Kiwibank was required byCCCFA regulations to build a picture of income, expenses and debt commitments.
“As a bank, we don’t check for minor individual expenses such as the number of coffees an applicant buys. Our assessment looks for regular spending patterns and the applicant’s ability to sustainably adjust their expenses to meet the debt servicing amount proposed.”
Kiwibank was offering a 1 per cent cash contribution offer for new home lending up to $10,000 which was available for new home buyers and those switching home lending.
“For first-home buyers wanting to put themselves in a strong position to buy their first home, homeownership is a long-term commitment and by demonstrating regular savings as they work towards a 20 per cent deposit, it shows they are committed to the journey.”
Majesty Mortgage and Insurance Advisors mortgage adviser Margaret Richardson said inflation, rising interest rates and bank criteria that applied stress testing were other contributing factors.
“So the higher the interest rates go the higher the stress rate and the less you can borrow.”
However, the property market was the lowest in years, which signalled a great time for first-home buyers.
“Investments lenders aren’t in the market so first-home buyers can take their time in purchasing. Auctions aren’t doing so well either so a lot of properties have been priced. This makes it clearer for first-home buyers to see where the property sits in the market and they are not overpaying.”
Richardson said buyers need to have as few debts as possible, keep day-to-day spending to a minimum and have good credit.
“The bank can look at your credit check to see if you have been missing any monthly payments on any credit cards or loans for the past 12 months so make sure you always pay on time.”
Rapson Loans and finance financial adviser Tristan Hewett said more people wanted help with their finances as dealing with the banks directly was difficult. The types of lenders had also changed.
“A greater portion are first-home buyers, followed by people who looking to refinance, then business finance for buying businesses and investors wanting to buy investment properties. But sprinkled in there are also commercial property and rural property purchasers.”
The cost of living was constricting clients’ ability to borrow as there was even less money left over to put towards servicing debt.
However, the reduction in house prices meant there were more opportunities.
“There are still plenty of deals being done.”
The changes to the Kāinga Ora area caps in the Western Bay of Plenty up to $800,000 for an existing house and $875,000 for a new build had increased the number of people who were eligible for the first home grant.
“This helps bolster their deposits to buy a house that has reduced in value.”
Hewett suggested people should pay off any short-term debts including Q-card or GEM Visa or car loans and not take any other debt on before submitting their home loan application.
Banks liked to see a savings history and it was advisable to cut spending on non-essential items.
The Mortgage Centre Rotorua principal adviser Praveen Bhati said its numbers had picked up as the year progressed.
Last month he had settled nine mortgage applications with his colleague and they were on track to do more this month.
“We are really busy so that is good.”
Most of the Centre’s clients were first-home buyers as it was harder for some investors to raise the 40 per cent deposit when the equity had dropped in their properties.
BNZ consumer lending and insurance partners Martin Elliott acknowledged the market had slowed due to inflation and rising interest rates and it took a broader view when it came to lending.
“We aren’t concerned about your daily coffee or Netflix subscription. We make sure that we are doing our best by our customers by ensuring all lending is appropriate and affordable and meets our customers’ unique needs and aspirations.”
He said the bank continued to lend to customers with less than a 20 per cent deposit on a case-by-case basis.
BNZ was offering cashback of up to $25,000 on new classic or standard home loans and under its green home loan top-up, customers could apply for up to $80,000 on a 1 per cent fixed rate for three years. This could be used for upgrades such as home insulation, ventilation, solar panels or an electric or plug-in hybrid electric vehicle.
An ANZ spokeswoman said it could not provide confidential mortgage data but New Zealand’s housing market was affected by the economic environment.
The Government is is changing the types of expenses that need to be captured in home loan applications to improve affordability regulations under the Credit Contracts and Consumer Finance Act.
“These changes are expected to be published soon,” the spokeswoman said. “Given this, we’re making changes to simplify what expenses we capture and make home loan applications quicker and easier.”
ANZ incentives included a 1 per cent cash contribution for a new home loan of $100,000 or more up to a maximum of $20,000.
There was also a Blueprint to Build offer for a discounted rate for people to build their own homes and its Good Energy Home Loan for customers to borrow up to $80,000 at a three-year fixed rate of 1 per cent per annum for energy efficiency upgrades.
Figures from the Real Estate Institute of New Zealand show residential property sales across New Zealand fell 31.1 per cent from 5750 in February 2022 to 3964 in February this year.
Nationally the median house price decreased by 13.9 per cent year-on-year to $762,000. In the Bay of Plenty, it fell 15.3 per cent to $821,000.
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