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Fear of a recession and the international credit crunch is giving many mortgage finance companies the jitters - making borrowing more difficult for home buyers.
Rejections for home loans at one of the country's biggest finance lenders, GE Finance, doubled in recent months, even as banks and other mortgage companies continued to hand out 100 per cent home loans.
Home owners are "lining up" to refinance at some institutions, extending their loan terms or choosing interest-only mortgage payments to avoid the financial slump. Some finance companies say they are becoming much more selective about who they are lending to.
Dave Shatford, the general manager of investments for NZ Finance, said the company's loan market had become "very selective".
People previously able to get a mortgage were finding it much more difficult, he said.
"The lenders are in the box seat now."
Shatford said he knew of finance companies increasing the criteria required to get a 100 per cent mortgage.
"There's an expectation that property values are dropping ... lenders are tightening up because they're not quite sure about property values."
While it's becoming more difficult to borrow, many homeowners are refinancing by extending their terms or switching to an interest-only mortgage payment.
Steve Robinson, senior mortgage broker with NZ Mortgage Finance, said the rise in interest rates had made him "busier than I've been in some time". His clients were lining up to refinance.
Robinson said that a mortgage of $250,000 borrowed at 7.65 per cent two years ago cost about $1773 a month.
But if interest rates reached 9.8 per cent, that would jump to $2157, or an extra $400 a month.
That, on top of rising food prices, will mean families are starting to feel the pinch.
"There's less money out there. We were awash in cash for a long time - now it's just a bit harder to find," Robinson said.
John Grant, a director of home lending at GE Finance, said rejections for home loans had doubled to 20 per cent in recent months. He said the company had restructured its criteria to make lending "more stringent" than in the past.
"We are tightening up to ensure, from a responsible lending point of view, that the people who take loans from us have the ability to manage them."
He described the move as "prudent" in current economic conditions.
Grant said the company was more interested in clients' financial history and repayment patterns.
Other lenders said the quick rise in interest rates had taken them by surprise.
"I think everybody has been a bit shocked at how quickly this has happened," said Mac Bycroft, chief executive of United Home Loans.
Bycroft said the company hadn't stopped the 100 per cent home loan but "it's just that little bit tougher to get the level of funds you want".
He said the company was running more extensive credit checks and would be looking at past hiccups, including the odd bounced cheque or missed credit card payment.
Bankruptcies may also be increasing.
Figures released by the Insolvency and Trustee Service for February show that 390 people filed for bankruptcy, up 38 per cent on the previous four weeks.
The figure included people taking advantage of the "no assets" option, which penalises people for only one year.
The option - which came into effect last December - is granted as an alternative to full bankruptcy for people provided they have only $1000 in cash, a car worth $5000 or less and their personal possessions.
Despite the international credit crisis, mainstreet banks are staying tight-lipped on their lending strategies.
Graham Hodges, chief executive of ANZ National Bank, said he expected some customers to "hit the wall" in the current market. He said banks generally used the same formula when deciding how to lend money, essentially a focus on "uncommitted monthly income" of households.
Blair Vernon, GM strategy and marketing at the BNZ, said it was "business as usual" and the bank was sticking to its usual lending criteria.
A spokesperson for Westpac said 100 per cent mortgages were considered by the bank on a "case by case" basis as they always had been.
Ian Park, head of retail banking for the ASB, said the 100 per cent mortgage was "here to stay".
House sales fell 32 per cent in February and prices dropped to a 12-month low, according to the Real Estate Institute.
Consumer spending on debit, credit and store cards fell, adding to the fear that high interest rates are curbing consumer spending and economic growth will fall sharply this year.
Earlier this week BNZ chief economist Tony Alexander warned that mortgages rates from the Australian-owned banks were tipped to reach 10 per cent in the next few weeks.
Banks are bracing for an increase in the number of bad debtors by increasing the amount of money stashed aside to cover loses.
But they are being coy about whether the move will burden customers with increased fees and charges.
"It is a bad sign that things aren't as good as they were three or four years ago," said David Tripe, from Massey University's centre for banking studies.
He said that banks had got away with putting aside an "extraordinarily low figure" for bad debt in the last five years.
* TOP TIPS ON HOW TO BEAT THE SQUEEZE
1 Buy only fruit and vegetables that are in season. Head to the fruit and veggie shop for the best and freshest deals rather than the supermarket, but always check the price and stop buying once it starts to climb.
2 Plan a week's worth of meals, make a list of all the ingredients you need, and shop for those items only. No food will end up being wasted and you'll be less tempted by treats in the supermarket.
3 Go for supermarket own brands. They're cheaper and the difference between them and market leaders is often only packaging.
4 Use up leftovers. The end of a roast and the off-cuts of veg can be transformed into stock to be used in a variety of soups and stews.5 Cook more than you need of things like stew, pasta and soup and freeze the leftovers. They'll be cheaper and healthier than frozen ready meals.
6 Find a corner of the garden to grow your own salad leaves and vegetables.
7 Drink tap rather than bottled water. You can flavour it with fresh mint or lemon.
8 Buy in bulk - sometimes. Take a calculator to the supermarket and work out the savings for washing powder and toilet paper. Be careful when bulk-buying food items. Sometimes it just encourages you to eat more.
9 Take a packed lunch to work. You'll save about $10 a day and cut down on calories.
Home
10 Get a lodger. If you have a spare room, spruce it up and rent it out to a young professional or foreign student.
11 When buying new electrical appliances, look for the Energy Star logo. The more stars an appliance has, the more energy efficient it is - each extra star means a saving in running costs of 10 per cent or more. Check annual energy use as an efficient large appliance might use more power than a less efficient smaller model.
12 Invest in energy-efficient lightbulbs, which use 20 per cent of the energy of ordinary ones. Four energy-efficient lightbulbs will save $65 a year for an initial cost of less than $24.13 Get energy saving tips online at www.energywise.org.nz. Ceiling insulation can save you $400 a year.
14 If you are coming to the end of a fixed-rate deal on your mortgage start organising your next deal.
15 Remember landlines? Many local landline calls are free. Put numbers into your cellphone to remember them.
16 Get rid of old beer fridges. Older fridges suck money. Make sure your seals are working properly.
17 Clean out your wardrobe - and swap with friends. If you haven't worn it for a year, chuck it.
Getting around 18 Travel on the cheap. If your dates are flexible, check Air New Zealand's grabaseat.co.nz site. 19 Check your tyre pressure regularly to save on fuel. Driving smoothly and checking your air filter can ensure you use up to 20 per cent less fuel.20 If you catch the bus, work out the zoning, and if you can walk a stop or two to reduce the ticket price, do it.
21 Sell your car. Join a car share scheme (Cityhop in Auckland) for $50 and rent one for $12 an hour (www.cityhop.co.nz).
Leisure time
22 Start a book club. Circulate novels around friends to keep yourself in books.
23 Check websites like wotif.com or lastminute.com for cheap deals on good hotels.
24 Go to the cinema on a Tuesday. Tickets at most outlets cost $10 for adults, a $5.50 reduction on weekend prices.
25 Don't throw your supermarket receipts away. Check the back for offers.
26 Give up your daily store-bought latte and use free supplies at work.
27 Download music from Russian websites. Legal sites such as gomusic.ru offer thousands of albums for less than $3.
General tips 28 Work out a budget. Use the planner at www.sorted.co.nz - and be honest.
29 Subscribe to Consumer magazine (http://www.consumer.org.nz) to get the lowdown on bargains. A 12-month subscription costs $79.
30 Set up an automatic overdraft reduction of $50 a month for every month.