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Mortgage Market Restraints

Tough servicing tests continue to hinder the mortgage market, leaving borrowers unable to tap into attractive headline interest rates.

By: Property Investor Team

31 July 2020

Economist Tony Alexander says there is an “apparent bank reluctance to ease servicing criteria” in the New Zealand market.

However, he believes there could be good news on the way for borrowers, with increased competition in the mortgage market, and possible cuts in one- and two-year rates in spring.

His latest survey of the property valuer market reveals that volumes of enquiries for house valuations have risen by 50% in July.

Alexander says enquiries for valuations to support the refinancing with a new lender of a currently mortgaged residential property have increased – but they have decreased for commercial property.

“This makes sense in that there is no evidence to date of any large decreases in residential property values, listings remain in short supply, and there is plentiful evidence of many buyers in the marketplace.”

Yet servicing continues to hamper the borrowing market, despite recordlow rates and banks pushing out more attractive headline rates.

Mortgage advisers say there is a greater disparity between the real rate and the test rate, which is as high as seven percent at some major lenders. They also say that banks need to do more to lower their servicing tests, so customers can access financing.

Meanwhile, in the Reserve Bank’s latest Credit Conditions Survey, banks reported that there had been no material changes to their serviceability standards.

But they said that Covid-19 has resulted in greater income uncertainty given the likelihood of higher unemployment and fewer hours worked. That means banks expect to perform more thorough due diligence to assess income and job security.

For example, higher “haircuts” will be applied to variable or “at risk” income (like bonus, commission, boarder/ flatmate rent, Airbnb income) included in servicing assessments.


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