An Auckland mortgage broker has accused New Zealand banks of taking a "nanny state" approach to home lending by focusing on people's spending habits rather than whether they can afford to borrow the money.

Christine Lockie, a broker with Takapuna-based LoanPlan said people with high incomes and high equity in existing property were being turned down because of high lifestyle costs including having children in private school.

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"All of these clients have the equity and they all have high incomes and disposable cash, but the banks are looking first at lifestyle and the cost of that lifestyle, and if they think it's a bit extravagant, they're going to turn you down."


Lockie said she had noticed the change after the introduction of a new responsible lending code.

The code came into force in June and means all lenders have to consider whether a person taking out a loan can make the repayments without suffering substantial hardship.

Lockie said the change had also made it hard for parents who wanted to act as guarantors for children buying their first home.

If mum or dad want to sign security for the children, the bank is unlikely to approve the arrangement if mum and dad only own one property, particularly if mum and dad's income means they are unlikely to be able to service the debt in case of a default.


"Dare I suggest it's a nanny state type of approach to lending?"

Karen Tatterson, a broker with Loan Market in east Auckland, said she the code now meant loan applications had to fit within bank criteria and that borrowers needed a "good surplus income" in place.

For anyone want to go as guarantors Tatterson said they now had a provide more documentation to prove their income where as in the past they had to provide a statement of position and the decision was based more around equity than income.

"Financial capability is the most important aspect now."

"It's about full disclosure and knowing you won't be putting people in a position where they are buying a home and can't afford to service the debt."

Tatterson said one of the hardest situations was seeing a young couple stretching to get on the property ladder where the woman was already expecting their first baby.

"They can afford to do it on two incomes and believe they can do it on one. It's just making sure we have the hard conversations around that."

Tatterson said costs like private school education did have a big financial impact and had to be taken into account when looking at whether a person could service a loan.

Clearly what they are trying to do is to ensure the customer has the capacity to repay the loan over a longer term.


Kirk Hope, chief executive of the New Zealand Bankers' Association said banks took their responsibility to comply with the code very seriously but had always lent responsibly.

"The measure of that is the number of mortgagee sales."

Hope said less than 1 per cent of all home loans went to a forced sale.

He said there had been no change on how bank's assessed people's spending habits.

"That just simply hasn't changed. What they want to know is if a customer has a range of expenses they are affordable so they can continue to repay it [the loan] and have a life and should a negative event happen that is not going to unduly affect them."

Hope said banks were stress testing borrowers to see how they would cope with a future increase in interest rates by adding between 1.5 per cent to 3 percentage points to fixed loan rates.

"Clearly what they are trying to do is to ensure the customer has the capacity to repay the loan over a longer term."

David Tripe, a banking expert with Massey University, said the perception of an industry wide crack-down probably meant some banks may have been a bit slap dash about it in the past.

Tripe said the code had been talked about for around five years and had come in response to concerns that people were borrowing too much.

He said the change had not resulted in a huge slow-down in lending by the banks.

It is not evidently causing a major slow-down in lending.


Tripe said some parents were able to get around the lending issue by giving their children a grant from their future inheritance rather than going as guarantors.

That allowed parents to not be tied to paying for the home loan if the children defaulted on the debt.

What is the responsible lending code?
A set of principles that require a lender to act with care, diligence and skill in all their dealings with borrowers. A key change is that lenders now have to find out if a borrower can make repayments on a loan without suffering substantial hardship.

When did it come into force?
June 6, this year

Who does it affect?
All lenders including loans to people who take out credit insurance and third party guarantors.

For more information on the code and how it might affect you click here.