Avoid the wave of home loan rejection
New guide helps borrowers avoid home loan train wrecks.
Splashing out on the high life too regularly can jeopardise any hopes homebuyers have of securing a bank loan, a leading New Zealand mortgage specialist warns.
"Spending cash unnecessarily makes lenders jittery," says William Laban, General Manager North for mortgage advisory business Loan Market. "If people have a weakness for things such as Uber Eats, dining out or designer clothes, it's time to cut back if they're wanting to buy because habits like these can bury the chances of getting a mortgage."
Loan Market - which operates 150 franchises throughout New Zealand and last year wrote $6 billion in mortgages - have launched a Buy Ready guide for prospective borrowers with tips and advice aimed at increasing the chances of a lender saying yes to an application.
"It helps prepare people when they approach a bank. We find nine out of ten people don't have a budget and just rock up to a bank with a train wreck of bank statements on a hope and a prayer expecting to get a loan," Laban says.
"With tighter lending criteria these days, it no longer works like that. Banks will be asking some pretty searching questions and often, you only get one shot.
"They will want to know about your personal finances, including savings record, credit history, employment and a whole lot more," he says. "Having your ducks in a row has never been more critical because we've seen too many fail to secure a loan for these reasons.
"But, having said, that lenders don't expect people to live like frugal hermits; they just want to know you're not splurging too much on the high life. If your living expenses are reasonable and the numbers stack up with what you want to borrow, then all good."
Laban's comments come against a backdrop of a fall in home loans across the country since tougher lending conditions through the Responsible Lending Code were introduced by the government late last year to protect vulnerable borrowers from predatory and irresponsible lenders.
Annual growth in lending for housing fell after the code took effect, from 11 per cent in November to 8.1 per cent in April. Although the government has since loosened rules under the Credit Contracts and Consumer Finance Act (CCCFA), banks are calling on it to relax them even more.
Laban says the Buy Ready guide - which Loan Market likens to pre-season training to get homebuyers match fit - is not just aimed at first home buyers or those less experienced. It is also useful for people looking to update their existing family home or who are considering dipping their toes into property investment.
He says tighter market conditions, the shifting landscape of inflation and interest rates, changes to lending regulations including new investor rules, tighter LVRs (loan-to-value ratios) and some lenders implementing their own debt-to-income ratios (DTIs), can sound like another language.
"Many customers don't understand what some of these changes mean. The bottom line is getting mortgage-ready is a complex, time-consuming process and the sooner you get started, the better. The days of turning up to a lender and getting approval, no questions asked, are gone."
Laban says one of the first things Loan Market does is help potential homebuyers with their budgets. "Most lenders will look at everything you do and scrutinise accounts for the three months prior to an application.
"Watching spending and getting accounts in order in the run-up to applying for a mortgage is more important than ever before," he says. "This includes clearing any credit card debts and outstanding loans and keeping on top of bills; any dishonoured payments are a giant red flag for lenders and getting on top of finances early can save people from disappointment and heartache."
Laban says the Buy Ready guide has five key tips which cover not only account management but advice on how much people can afford to borrow, an explanation of how the deposit process works and what amount will be needed, budgeting and why it is an advantage to speak with experts before going to the bank.
Laban says the company is well positioned to help prospective homebuyers. "We are the largest mortgage originator in New Zealand and work with an extensive panel of lenders to secure home loans for about 12,000 customers a year."