Shattered dreams as home loan approvals plunge after lending law changes
Jason and Cindy Guild have had their house-buying plans derailed by a double-whammy of Reserve Bank restrictions on low-deposit lending, and lending law changes supposed to protect vulnerable borrowers.
The couple’s pre-approval for a loan from BNZ to buy a home in Auckland was cancelled in December, just days before they were to bid at an auction on a home in Maraetai, on the eastern fringe of Auckland.
“We thought this government was trying to put us into houses, but it seems like it’s not,” said Jason Guild, an electrician employed by a large power transmission company.
Since the changes to lending laws kicked in at the start of December, the proportion of home loan applications that resulted in home loans fell from 36 per cent to just 30 per cent, said Keith McLaughlin, managing director of credit reporting agency Centrix, which tracks loan applications and approvals.
In October, the rate had been 39 per cent, Centrix data showed.
The drop in the rate of home loans being issued was worth almost $2 billion a month, Centrix estimated, and represented a drop from 30,000 home loans per month before the changes to 23,000, on average.
The drop was sharper on consumer loans like credit card, car and personal loans, Centrix data showed, dropping from around 34 per cent approved before December to just 23 per cent, McLaughlin said.
The lending law changes were the result of government attempts to protect “vulnerable” borrowers from unscrupulous lenders.
But mortgage advisers claim they have pushed banks to become “ultra conservative” lenders leaving many first-home buyers unable to get loans they would have qualified for before the changes, creating an artificial credit crunch.
McLaughlin said the data appeared to confirm their claims, but the true, long-term impact would become clear in the coming months.
“What I see is a proportion of people who would have been approved before December 1 being declined. It’s a large proportion,” he said.
The drop in the proportion of loan applications being approved in December was larger than when the country went into Delta lockdown in August, McLaughlin said.
Katrina Shanks, former National MP and now chief executive of Financial Advice New Zealand has written to Commerce and Consumer Affairs Minister David Clark asking for a review of the impact of the law changes.
“We went out to our members before Christmas and within two days we had 300 examples from our advisers of how someone’s pre-approval had been withdrawn, or where they would have expected a person to have received a mortgage previously, didn’t get it approved at all, or got it approved at a substantially reduced amount, which did not work,” she said.
“This should be about vulnerable consumers. That’s who these changes were made for. What it’s done is impacted all of New Zealand, and most New Zealanders aren't vulnerable,” she said.
“The net has gone far too wide. It's caught the average New Zealander, who didn't need additional protection because the responsible lending code was working,” she said.
McLaughlin said the percentage of people defaulting on their home loans had been declining for years.
Shanks’ move is the third attempt to prompt a review of the laws.
ACT leader David Seymour has called for an inquiry, and John Bolton, chief executive of Squirrel Mortgages, has started a petition to Parliament.
“The changes were made to protect vulnerable borrowers from predatory lenders, but cover almost all lending and will cause significant financial harm,” Bolton said.
The petition closes in mid-February, and will be presented to David Seymour on the steps of Parliament, Bolton said.
Seymour said the unintended impacts of the law changes were another chapter in long-term trend for New Zealanders to spend more time on compliance, and less on productive activity.
“A lot of people who could have been buying homes and building businesses instead have come to a halt,” Seymour said.
Guild said losing their pre-approval was a bitter blow for the couple after a year of searching for a home, but BNZ refunded him and his wife the cost of lawyers’ fees and building inspections.
The home they were preparing to bid on was just 150 metres from the sea, and while it needed work, Guild had the skills to do it himself, adding immediate equity to the home.
“It went for $20,000 under what I was going to pay for it,” he said.
It sold for just over $1 million, which was $150,000 less than the loan he was pre-approved for, he said.
The couple were only slightly short of a 20 per cent deposit, but they had no debts, no children, and both were in high-paying jobs.
They said they were emotionally drained by the experience, and did not know when they were likely to be able to buy a home, but were working with mortgage adviser Karen Tatterson.
Tatterson said the combination of the low-deposit lending restrictions and the lending law changes had made it so much harder for couples like the Guilds, regardless of their skills, income and very low risk of defaulting on a loan.
“They completely qualified. They were pre-approved, and ready to go,” she said.
When their pre-approval was cancelled, there was no chance of being able to find a loan from another bank, as application processing had slowed down so much, she said.