Banks are reducing incentives for borrowers and making it harder to obtain loans. Incentives such as TVs, phones, and cash have been offered by banks to attract mortgage customers for years – but such incentives are thinning and the banks are imposing tough stress tests which make it harder for borrowers to meet lending criteria.

Six months ago home-buyers were able to get $5,000 to $7,000 in cash from a bank by switching or taking out a new mortgage. Now cash contributions from lenders are not to be taken for granted.

While cash sweeteners have not totally disappeared, their availability and size have dwindled. Now, any contribution is likely to be in the region of $3,000 to $5,000 maximum and only for the right client from certain banks. Some lenders are offering no contribution or a maximum of around $1,500.

Facing increased funding costs and global economic uncertainty, the banks appear to be trying to claw back their margins.

Looking beyond cash contributions

Mortgage customers are now looking beyond cash contributions and towards more value added services such as expert advice on loan structure, early repayment options, best rates, and overall service and relationship when assessing or reviewing their mortgages.

This is one of the major advantages of dealing with an experienced Broker who can provide advice on all aspects of mortgage structure and property ownership. I have often found that people have been amazed when I provide them with information that they have not previously received from their bank. This relates mainly to ways of reducing debt faster and the proper structure of investment property debt. In many cases I have been able to show clients ways to reduce the term of their mortgage and save thousands of dollars in interest.

Banks and Economists are anticipating that there will be increased pressure on lending margins in the coming months which will influence interest rates. This is due to the banks trying to increase their margins back to previous levels and to the fact that they are paying more to win customers deposits. This will lead to higher funding costs being passed through to borrowers.

What to do when rates rise

A shift of 1% in interest rates could make a lot of difference in monthly payments for people depending on the size of their mortgages. For example, a client with a $500k mortgage will have increased interest costs of $5,000 per annum or more than $400 per month.

This increase may need to be planned for and if possible staggered over a period of time. I do have some helpful suggestions for clients and suggest that a mortgage review could be very valuable for anyone coming to the end of a fixed rate term.

If you or someone you know is looking at entering the market or would like to have a chat regarding the current or future property situation status, please contact me today. I will be very happy to meet for a catch-up.

Market observations

Recent market data indicates more subdued sales activity and less demand in many regions around the country, especially in Auckland where the market has fallen far from its high- point of recent years. Despite this, house prices just keep rising in most areas including Wellington.

The recent LVR restrictions have limited the numbers of buyers in the market, reducing turnover, but has had little bearing on buyers’ willingness to pay. Mortgage rates have been creeping higher since last October, ending the downward trend that borrowers have been enjoying over the past couple of years. Predictions are that this turnaround in borrowing costs could have a more meaningful impact on house prices than the LVR restrictions.

Mortgage strategy

The right advice and correct structure of mortgages are becoming more important to most borrowers than chasing the best interest rate and cash handout from the bank. Borrowers are now shying away from Floating rates and many are opting to fix their loans, often for just one or two years due to the favourable shorter term rates. This may not be the best strategy for people with large amounts of debt and these clients should seek advice and consider a ‘cocktail’ of different fixed rate terms.

For new borrowers, the support of an experienced broker is more important than ever as lending and credit criteria tighten and cash incentives are being removed by most lenders. As the banks become increasingly likely to turn down loan applications, what I’m seeing now is that clients are happy if they can actually get a loan, rather than feeling they got ‘the best deal’.

It is also an important time for existing home owners and property investors to take stock of their situation and review their mortgage structure with a view to the best management of their debt. I have been successful in helping a lot of people with plans to reduce interest costs and in many cases found ways to accelerate the reduction of principle amount.

If you or someone you know is looking at entering the market or would like to have a chat regarding the current or future property situation status, please contact

me today. I will be very happy to meet for a catch-up.

There are a number of factors that have recently converged to change the borrowing landscape, ultimately making it harder for people to obtain a mortgage. These changes make using a good mortgage broker more relevant than ever.

Here are some quick facts about the current mortgage landscape:

Interest rates are on the riseReserve bank LVR restrictions are making it harder for first home buyers and property investorsServicing margins increased to ensure future affordabilityNon-resident borrowers shut out of the New Zealand market

Interest rates

At last, it has happened; interest rates are unquestionably on the rise.

Short term rates have risen to nearly 5%, compared to around the 4.40% rates that were available in the middle of 2016 with some special 2-year rates still available to qualifying customers at around 4.50%, compared to 4.10% or in some cases 3.99% rates in early 2016.

At the end of the fixed rate scale, 5-year rates are now heading toward 6%.

These rates are still comparatively low compared to the average over the last 10 years, but it does mean that mortgage holders will have to budget for an increase in payments when they next fix their mortgage.

LVR Restrictions hitting property investors.

We are now getting used to the fact that there is very little availability of funding for people who do not have a 20% deposit when buying a house due to the LVR restrictions imposed by the Reserve Bank, which has had a big effect on first home buyers, as well as investors.

Investors can now borrow no more than 60% of the purchase price of a rental property, effectively meaning that some people no longer have enough equity in their home to be able to buy an investment property. Other people who have more equity can still buy an investment property but are limited to one worth half as much as they would previously have been able to buy under the old rules.

Interest only loans are also harder to get for property investors, with a lot of lenders restricting the interest only period to less than 5 years.

Due to the requirement for lenders to hold more liquidity to offset investment property loans, most banks are not as keen to take on this sort of lending and are also charging higher interest rates for some investment loans.

Servicing margins rising

Even though mortgage customers have been paying typically 4 – 4.5% for fixed mortgages and around 5% for floating, the bank uses a much higher ‘test rate’ when working out whether the customer can afford the loan. This test rate or ‘servicing margin’ is there to ensure affordability over the long term when rates will inevitably rise. The test rate in use by most lenders has been slowly increased over the last year or so and this week increased to 7.8% making it harder for some customers to qualify for a mortgage.

Non-residents shut out of New Zealand market

Recently a client of mine had been unable to obtain finance for the purchase of a property in New Zealand. This client has New Zealand citizenship, however, are currently residing overseas, have more than half of the purchase price of a modern townhouse in cash and the rent from the property would more than service the mortgage and other costs meaning that there would be no reliance on their overseas income to service the debt. The lending rules for non-residents have tightened up, however, so much so that none of the main banks will even consider an application.

In this instance, I was able to able to help my client by going to a non-bank lender and others who have also been able turned down after first approaching their own bank. It’s so important to consult with a mortgage adviser who can prepare a professional mortgage application on behalf of the client. Mortgage brokers know the lending marketplace and can find the most appropriate lender to suit the client’s situation and the current market landscape.

If you are thinking of buying or selling any property or would like a review of your mortgages please contact me today.