Mortgages harder to get over the line

Advisers taking part in economist Tony Alexander’s latest survey say most lenders are at a minimum of 10 working days in their turnaround times – a deeply frustrating situation that is offsetting some easing of lending criteria.

Alongside this, the number of advisers saying banks have become more willing to lend to home buyers has fallen to 17%, down from 34% last month and 57% in September.

The main cause they believe is the blowout in loan application processing times.

When buyers are finding a house, more often than not they are having to put down 15 working days for finance and even then it is tough to get the deal over the line, one adviser says.

“Banks’ appetites are good but they are treating the adviser channel poorly. “They don't seem to understand that their delays in processing applications actually make the problems worse as we're forced to multi-bank applications as we can't wait two weeks for a response.

“Because of the turnaround times and extent of assessment it appears clients are better going direct, which is frustrating and anti-competitive,” another adviser says.

As part of the blowout, banks are tightening up on receiving applications from first home buyers (FBHs) who don’t have a 20% deposit and preference is being given to existing customers.

Banks generally only want live deals – auctions and signed sale and purchase agreements. Even then they are not guaranteed to be accepted, advisers say. 

Some of the slow turnaround times have been put down to bank test rates reducing.

Last week ASB closed all pre-approvals to new customers until 22 November saying it needed to reduce turnaround times as it was experiencing high demand for its home loans because of lower mortgage rates, subdued house prices, growing interest from FBHs, investors and customers looking to refinance.

This did not impress advisers and feedback in Alexander’s survey found one bank giving a 24-hour turnaround to customers who approach the bank directly.

One adviser says he knows of instances where a client got a home loan approved and the contract confirmed before his business even got a response from bank.

The business presented a loan application to one bank, and without a response within a week, the clients went direct to their own bank. They got a full approval within days and the loan was settled within a couple of weeks.

Three quotes

Some advisers blame the slow turnaround times on the Commerce Commission recommending they get three quotes for clients.

In its final September report into banking sector competition, the commission said mortgage advisers needed to "become champions of price competition" and where possible they should present clients with at least three actual offers from lenders.

It said they should also highlight to clients any banks they were not able to work with, as well as the interest rates that might be available there.

At the time, advisers said any suggestion they present borrowers with three bank offers could end up making things harder, as at any given time they know where pricing is sitting across the market, and this informs their recommendations to clients in terms of which lender to submit an application to.

Advisers say they talking to different lenders on an almost daily basis as part of settling deals and constantly reviewing different bank credit policies to help them understand who is prepared to land and at what rates. 

Presenting three different quotes to clients would mean the number of applications to each bank would skyrocket, with lenders having to go through a full credit assessment for loans they are going to get only 33% of the time.
With times ballooning out and already frustrating advisers, if it is happening it is bogging down the entire system to achieve nothing, advisers say.

More activity

About 55% of advisers say they are seeing more first home buyers in the market. This is up from 39% last month and the strongest result since October last year.

Last year’s surge in young buyer demand fizzled out as worries surfaced about interest rates going higher and as a large number of sellers entered the market causing a decline in FOMO (fear of missing out).

This time around advisers say falling interest rates are causing people to expect stronger housing activity, with more buyers appearing.

It is the same story for investors. A record net 60% of advisers across the country say they are seeing more investors in the market. This reading is up from 47% in October and just 9% four months ago.

The turnaround in investor demand has been strong and Alexander says it looks to be due to falling interest rates offsetting the depressing effect on rents of rising unemployment and migration losses.

Debt-to-income (DTI) ratios are now becoming more of an issue for investors as bank test rates drop, advisers say. However, with test rates coming down, it does seem easier for investors to buy, one adviser says. “Rental shading has come down to 20% more or less.”

A notable feature of the survey is jump to 11% of advisers saying that people are opting for a floating mortgage rate. This appears to be driven by a desire to see what happens at the next official cash rate review next week with widespread expectations of another 0.5% rate decline. A high 88% of advisers say borrowers are choosing to fix their mortgage interest rates for 6 –12 months.