Mortgage adviser Darren Pratley, formerly of TNP, said the change had been noticeable over the past four or five years. Where banks would previously have been most comfortable with loans about three times the borrowers’ income, they were now looking up to five times.
He said that was probably driven by lower interest rates but those rates could not be relied on to continue.
“They’ll have to carry that debt for 25 years. Incomes haven’t gone ahead that much but the tolerance around servicing seems to have loosened. If that is the case then technically the banks are putting borrowers in a very difficult situation.”
Banks were not taking much risk because prices were still going up and LVR restrictions meant fewer borrowers coming into the market with small deposits, he said.
“Most people are now borrowing $500,000, that’s $900 a week, a pretty big chunk of someone’s net income.”
Banks said there were a number of factors that played into their decision to issue a home loan to a particular customer, including uncommitted income after expenses, credit history and the property being purchased.
BNZ director of retail banking and marketing Craig Herbison said the bank had ongoing conversations with regulators to ensure it was appropriately assessing a borrower’s ability to repay a loan. “We don't just look at the short-term, but for as long as can be reasonably forecast over the life of their loan. It's an area we have a strong focus on as a responsible lender.”
Kiwibank spokesman Bruce Thompson said servicing calculations were under constant review.
“The ability to service the loan is our primary consideration when providing finance to our customers, we continuously review and updated these calculations to ensure our customers are able to meet the repayments on their loans – this serviceability is based on a net servicing ratio rather than purely a debt to income ratio and is influenced by factors external of income.”
ASB said its rules had not been relaxed. ANZ said it applied an interest rate buffer to ensure a borrower could still service their loan if rates rose.
