Aspiring homeowners have to clear higher hurdles to get finance.
Aspiring homeowners have to clear higher hurdles to get finance.
Aspiring homebuyers will need to satisfy their banks they can service debt at interest rates close to 8 per cent in some cases to get their mortgage applications approved.
ANZ's "servicing sensitivity rate" is currently 7.95 per cent. Meanwhile, ASB's is 8.15 per cent.
Four months ago, bothbanks were stress testing mortgage applicants at 7.35 per cent.
BNZ's test rate is 7.5 per cent (up from 7.25 per cent in June), and Kiwibank's, 7.25 per cent.
Westpac is continuing to test mortgage serviceability by adding 2.5 percentage points to the interest rate a borrower wants to take out a mortgage at.
So, if someone applied for Westpac's special fixed two-year rate of 5.65 per cent, they would have to be able to service debt at an interest rate of 8.15 per cent.
Banks frequently review these test rates, designed to ensure borrowers can service debt if economic conditions change.
The Reserve Bank, in its latest Financial Stability Report published in February, said the fact banks kept test rates elevated when interest rates plummeted in 2020 and 2021, reassured it the bulk of borrowers could keep servicing their debt in a rising interest rate environment.
Banks kept testing applicants at between 6 and 7 per cent in 2020 and 2021.
The Reserve Bank warned that "recent borrowers with elevated debt levels relative to income would incur significant debt servicing costs if mortgage rates were to rise above these test rates".
The average fixed two-year mortgage rate is currently 5.47 per cent, according to interest.co.nz. However, a number of banks are offering fixed two-year rates above 6 per cent.
"While we do not anticipate acute servicing stresses to emerge among a material proportion of mortgage borrowers, rising debt servicing costs as monetary policy tightens are expected to cause discretionary household consumption to soften," the Reserve Bank said in February, when interest rates weren't expected to rise as aggressively as they are now.
Aspiring homeowners have to clear higher hurdles to get finance.
The Reserve Bank, in August, forecast the OCR peaking at 4 per cent. However, bank economists now see it rising to between 4.25 and 4.75 per cent, as they believe the global battle against inflation will be harder than previously expected.
While the Reserve Bank won't release forecasts at its review on Wednesday, its language should hint at whether it believes it'll have to do more than it foresaw in August to curb inflation.
Mortgage rates – shorter term ones in particular – are influenced by the OCR. But they don't correlate point-for-point with changes in the OCR, as they're also influenced by international financial markets. Furthermore, banks tend to price in where they expect interest rates to go in the future.
There is another factor making it more difficult for aspiring homeowners to get finance.
Banks are continuing to take a risk-averse approach towards lending to borrowers with small deposits.
Reserve Bank loan-to-value ratio (LVR) rules mean no more than 10 per cent of a bank's new lending to owner-occupiers can go to borrowers with deposits of less than 20 per cent. Meanwhile no more than 5 per cent of new lending to investors can go to borrowers with deposits of less than 40 per cent.
Exemptions apply, including for new builds and borrowers supported by some government-backed schemes aimed at helping people into home ownership.
Banks are continuing to turn away customers to meet these rules, and possibly to proactively manage their risk in a rising interest rate/falling house price environment.
Both ANZ and BNZ are only accepting applications from people with deposits of less than 20 per cent if they're existing customers and meet the banks' criteria.
An ANZ spokesperson explained, "In order to manage the number of applications, and ensure we continue to meet our obligations to the Reserve Bank, this currently applies to approvals only (not pre-approvals)."
A BNZ spokesperson said, "Customers with a lower deposit who are actively considering a property or have a live sale and purchase agreement should talk to us about their options."
A Kiwibank spokesperson said the bank is prioritising its own customers, as well as first home buyers, when assessing applicants with deposits of less than 20 per cent who are subject to the Reserve Bank's restrictions.
Meanwhile a Westpac spokesperson said, "New home loan pre-approvals for customers with less than a 20 per cent deposit are still paused to ensure we stay within the Reserve Bank's LVR limits."
An ASB spokesperson said the bank is accepting applications from borrowers with deposits of less than 20 per cent, but didn't specify if this was restricted in any way.
Overall, banks' mortgage lending has been falling back to 2019 levels. As was reported last week, banks lent 34 per cent less against housing in August this year, compared with August last year.
