First-home buyers earning $225,000 ‘absolutely gutted’ after bank turns them down

Kiwis banking on buying their first home with a deposit of less than 20% could be in for a shock, with two of the country’s major lenders turning off the taps to all but existing customers.

The move to restrict finance, so soon after the rules on low-deposit lending were loosened, has angered many buyers.

One couple recently posted on a first-home buyer Facebook page that despite having a combined income of $225,000, $75,000 in KiwiSaver, and $2000 in savings, they couldn’t buy their dream home.

“Absolutely gutted. Our mortgage guy told us we could start looking for houses and we found our dream home,” they said.

“He reckoned we could get a high LVR [loan to value ratio] loan due to the fact we had less than 10% deposit but a high combined income.

“Well, we’ve just been advised that BNZ has reached their threshold on high LVR loans so he said there are no other options but to wait.”

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BNZ is the only main bank offering 95% lending to first-home buyers, but it’s restricted by Reserve Bank rules governing the percentage of total loans it can make to low-deposit borrowers. Once its quota fills up, applicants are turned away.

Gareth Veale, of EasyStreet mortgages, said other banks typically offered 90% mortgages to first-home buyers but ASB had recently turned the taps off to new borrowers with 10% deposits.

“Unfortunately, what [the banks] tend to do is allow people to get pre-approvals and so not committed lending,” said Veale. “And it just sucks [the allocation] up and it takes them months to work out they’re not going to use up all of their allocation and then open the tap again.”

Both BNZ and ASB were still lending to existing clients with low deposits although the definition of “existing client” was quite loose, and borrowers could often find a way to qualify. “For some of those banks, you only have to have an account or KiwiSaver with them, and they’ll consider you as an existing client. In the case of ASB, if you have an insurance policy with AIA, you can be considered an ASB client.”

First-home buyers could get 95% First Home Loans through Kāinga Ora, said Veale, but income limits meant buyers with a combined income of more than $150,000 would not qualify.

EasyStreet mortgage broker Gareth Veale says the banks have used up their allocations. Photo / Supplied

Andrew Chambers, chief executive of mortgage brokers Tella, said low-deposit borrowers should check their finances to ensure they were in a healthy position. Debts, like car loans, tended to be viewed negatively. “A $29,000 car loan is a death knell. Car loans have a huge impact on your ability to service mortgages because they’re short-term. It’s a bit of a trap for the Millennial and Gen Z crowd who are into buying new cars on credit.”

The banks have different approaches to how car loans would affect the ability of the borrower to buy a home. Chambers said ASB and ANZ would accept up to $40,000 in existing car loans if the borrowers could still afford to pay the mortgage. “Westpac are a bit harder on this and seem to have a cap of around $10,000.”

If borrowers had other types of consumer debt, then they would find getting approval even more difficult.

Chambers urged first-home buyers with approval to take advantage of falling interest rates and softer house prices. He believed the supply of new-build homes was likely to dry up. “The stuff that’s been built will slowly sell over the next year and it will get harder and harder again because no one will be building. On the construction side, everyone’s slowed down. Get in now before the FOMO sets back in.”

BNZ told OneRoof it continued to support low-deposit borrowers “with their home loan aspirations. To ensure we continue to sit within the RBNZ guidelines, we monitor the percentage of customers with small deposits on a three-month rolling average basis.”

ASB said the Reserve Bank had regulations in place for residential lending with high LVRs. “This means that from time to time, banks need to take steps to moderate the lending we can provide to customers with an LVR greater than 80%. Any restrictions are reviewed frequently, and we adjust these where possible to ensure we are supporting as many customers as we can onto the property ladder.”

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