The NZ Property Investors’ Federation (NZPIF) is concerned that the Reserve Bank of New Zealand (RBNZ) and trading banks are working against each other, with securing finance proving to be more difficult than usual.
Sharon Cullwick, chief executive of NZPIF, pointed out that the central bank recently proposed scrapping the loan-to-value ratio (LVR) restrictions to stimulate the economy. In contrast, trading banks still use high serviceability tests, making it difficult for customers to get loans.
If the central bank scrapped the restrictions, Cullwick said banks might require less than 20% deposit, which would allow more people to qualify for property purchases. However, she clarified that banks have requirements for testing the borrowing capacity of customers seeking a loan.
“Banks are still applying high serviceability tests, which will stop some people from securing a loan. These serviceability tests normally calculate whether a borrower can afford the repayments on a loan after their expenses and income are taken into account,” Cullwick explained.
“In December 2019, the test rate was as high as 7.5% with no sudden change in this rate since COVID-19 came about. It also means that some loans, which were approved prior to the lockdown, are now being revisited and, in some cases, have been declined.”
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Cullwick said receiving financial help would be more complicated than usual even with the drop of interest rates, with some banks requiring at least 60% LVR for “new to bank” customers regardless of their financial situation amid the pandemic. Some also stopped processing new customers who are seeking loans for investment property or purchase as an owner-occupier.
Many banks have removed high-interest rates charged for the purchase of investment properties. However, they have “gone into a holding pattern to see what the full effect of the mortgage deferral will have on some customers and then will re-evaluate their complete portfolio.”
“All of these constraints have and will continue to delay home purchases, new buildings and are stalling the market even if the Reserve Bank reduces LVR restrictions”, Cullwick concluded.