KEY POINTS:
Home buyers with no deposit wanting 100 per cent finance will now find it extremely difficult, if not impossible, to get a mortgage.
The contracting property market and international credit crunch has prompted mortgage lenders to tighten loan criteria, to the point where those with little or no
deposit - or the self-employed who can't show a track record of earnings - may not be able to get finance.
Whereas 18 months ago mainstream banks were competing aggressively with non-bank lenders to gain 100 per cent and 'lo-doc' loan business, now all lenders have stepped back from that end of the market.
Lo-doc loans, where self-employed borrowers complete a reduced set of loan documentation because they have difficulty providing proof of regular income, are a feature of the New Zealand mortgage market because of the many Kiwis who work for themselves.
However, Westpac has just reduced its maximum loan to value (LVR) ratio for a lo-doc loan from 85 per cent to 65 per cent. That means a self-employed borrower wanting to take out a mortgage with Westpac may need at least a 35 per cent house deposit.
A Westpac spokesman said the bank was adjusting its loan criteria "to ensure our customers do not overcommit themselves in this changing environment".
John Grant, director of New Zealand business for GE Money Home Lending, said his organisation tightened its lending criteria a year ago in the face of an overheated property market. "It was more prudent for us to step back a little bit from the 100 per cent lending."
Mr Grant said GE Money still did 100 per cent mortgages, but it was now more careful about property valuations and in making sure individuals could keep up with repayments.
He said the lender was also "doing a reasonable amount of reviewing" of its lo-doc loan business. There had been a significant increase in the rate of loans being declined, from around 10 per cent to 20 per cent.
Geoff Bawden, chairman of the Mortgage Brokers Association, said even good quality borrowers wanting top-ups on their mortgages were being put under the microscope. Banks were being "a bit more inquisitive" as to what the top-up was for.
Mr Bawden said although New Zealand financiers had not made the same mistakes as sub-prime lenders in the United States, "I think it was a fairly natural expectation that sooner or later we'd see that end of the market in New Zealand, which was in comparison a fledgling market but was gaining momentum, start to pull back a bit".