After nearly a year of home buyers’ fearing their mortgage applications will be turned down by banks, the tide turned at the end of last year.
And already in January, phones are ringing hot from borrowers ready to try for a loan, mortgage brokers told OneRoof.
EasyStreet financial adviser Gareth Veale says the number of enquiries from first-home buyers and those people wanting to trade up existing homes so far this year is up by about 50% compared with the previous January numbers.
Mortgage brokers usually see an increase in interest at the start of every year as people set goals over the holidays and that often includes making a property move, he says, but this year there have been even more. For him it started just after Christmas.
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“It’s busier,” he says. “People have the time to think and make these sorts of decision.”
They usually want advice around whether making their goal is realistic or not and whether they can start the process, he explains.
Veale says while there was a “long-standing battle” to convince some borrowers to apply for mortgages because they feared rejection, that eased by the end of last year as changes to the CCCFA, which governs how banks assess loan applications, came into effect.
“I would say that eased from October onwards. Still unaffordability and testing servicing rates up over 8% are a thing. It is a barrier, it stops people walking into banks, it’s a little less scary to go to a broker. You go to a bank cap in hand, I’m in shorts and a T-shirt,” he says, adding that brokers with access to a wide number of lenders only submit applications that they know have a high chance of success.
Home loan applications last year were stress-tested to ensure borrowers could still afford 7% interest rates. Now banks are stress-testing for up to 8.5% rates. Photo / Getty Images
“We got used to providing the narrative to banks on what [borrowers’] spending meant.”
Loan Market mortgage adviser Dave Williams says the CCCFA has been a broker’s best friend because it has another layer of complexity to an already complicated offering and encouraged people to turn to them to help understand it.
He says first-time borrowers have in the past come to brokers to mend applications they’d been told by the bank were not correct, but now they are using mortgage brokers as their first entry point rather than their second.
“I like to think we are providing a much better level of service to our clients because we’ve got skin in the game as well.
“And when the banks remove the incentives of their lenders, none of the lenders have skin in the game now – they don’t really care whether they approve a loan. If it’s too hard, which quite often they are, they often take a risk adverse approach because they don’t want to get into trouble and they’ve got no incentive to push it through.”
Since he returned to work in early January, Williams’ phone has been ringing off the hook with enquiries, mainly from first-home buyers. He adds that not all of those translated into actual purchasers as there is a mix of those with low deposits wanting to access Kainga Ora’s First Home Grant and those with a 20% deposit.
“We are getting great numbers of people getting pre-approvals and ringing us very excited.”
Mortgage Lab general manager Jarrod Kirkland says that the tougher bank environment has helped grow brokers’ share of the lending market from somewhere around 40% a few years ago to over 60% today, although this varies from bank to bank.
“We’ve never been busier, but when there’s uncertainty in the market, a certain percentage will sit on their hands until the market settles down.
“But since January, people are just jumping in. The phones have started ringing.“
Kirkland says borrowers whose fixed term loans are about to be renewed are seeking help for strategies to structure their mortgages in the face of rising interest rates and dropping house values, while investors are shifting their portfolios from existing homes to new-builds for better tax effectiveness. Both segments realise that the process of finding the right house and getting approvals is taking longer.
He says that while borrowers felt the effects of the tougher CCCFA spending reviews, the stress-testing in the past few years of their ability to service loans at 7% paid off.
“Now we’re testing servicing at 8.155% to 8.5%. It made it tougher, but it made it safer, building in some buffer.”
Kirkland adds that when people were holding back on applying for loans for fear of rejection, he worked on a plan to improve their financial position to be able to apply successfully three months later.
EasyStreet financial adviser Gareth Veale says the number of enquiries from first-home buyers is up. Photo / Supplied
Squirrel mortgage company founder John Bolton concurred that brokers were working harder for their commission, and borrowers were tapping brokers as banks got harder and harder to deal with.
“We can help people out of difficult situations, helping people negotiate their way through higher interest rates, doing a lot of restructuring [loans] and re-financing.
“Pretty much everyone who got a mortgage last year can afford the new rates, but it still hurts. Inflation is driving up all your other costs, so how realistic is the budget – general costs, insurance is going through the roof.”
Bolton is sanguine about this cycle. Having launched his business in 2008 just as the GFC hit, he’s seen it before.
“In New Zealand we’re more responsive to interest rate hikes, our entire market gets hit whereas in USA people are on very low 30-year fixed rates or Australia about 80% are on floating rates ... but their rates haven’t gone up as fast as ours.”
- additional reporting, Nikki Preston
