Banks tightening their lending criteria

March 2017

Banks tightening their lending criteria

We’re finding banks are getting tougher on lending to home buyers. This has slowed down the market considerably. Banks are being more stringent about home loan criteria. If this continues, it will become more challenging for vendors to sell their properties within the expected timeframe.

This change has been taking place gradually in the market. People just seem to be waking up to it now.

Our mortgage brokers are telling us they are having more loans turned down across the board than they have ever experienced – loans that would have been approved in recent months.

Banks are clearly feeling the pinch. They’re being squeezed on margins when they refinance their offshore loans. Banks struggling to refinance their loans lose money on mortgages when margins are too tight. It’s why they’re turning down more mortgage loan applications. They have to protect themselves against any potential downturn in the property market.

BNZ Chief Economist Tony Alexander reported in December 2016 that banks sourced just under 30% of the money they loaned in New Zealand from offshore savers. I agree with him that we have ‘too high dependence on offshore savers and it’s our biggest banking system threat’. This dependence needs to be reduced.

Uncertainty in world markets following Trump’s election simply compounds the situation. A narcissistic US president who has little regard for the truth cannot help but make people nervous about whatever ill-judged move or unfounded accusation he might make next.

Banks are also being adversely affected by big property developments taking longer to complete than projected. If developers are exposed to significant risks with big, complex developments – so too are their banks. It’s telling that 35 high-profile Auckland residential developments were canned late last year. Reasons included bank funding restrictions and escalating construction costs.

Auckland Council’s proposal to allow the development of 120,000 new homes in six areas of greater Auckland is a joke. Where will the funding come from for the level of infrastructure that will be required? Further big rate hikes? I don’t think so. The council consented just 10,000 dwellings in 2016 – at least 3000 short of the number required to meet demand. Council resource consent staff should be fired and a more efficient privately operated system implemented – as happened in Christchurch.

We’re still desperately short of builders and construction materials. A shame there aren’t enough builders coming here under the so-called skilled migrants’ category. We’ve had an unprecedented number of migrants in recent years, most of whom settle in Auckland, further exacerbating the housing shortage and cranking up property prices.

In short, we don’t have the financial or physical capacity to provide the number of new homes we’re told we’ll need.