A local property expert estimates more than half the houses being sold in Rotorua are going to the second or third offer in line because buyers are struggling to secure finance.
She warns that banks appear to be more strict in their lending criteria, leading to a higher risk of having a mortgage application declined.
However, banks say their lending criteria has not changed since Covid-19 reached New Zealand soil and each loan application is assessed on a case-by-case basis.
And one mortgage broker says it's not the banks declining loans, rather the "ridiculously short" finance dates in sale and purchase agreements, meaning buyers are running out of time to secure their finance.
New residential mortgage lending data collected by the Reserve Bank of New Zealand shows the amount of money lent nationwide in August 2020 rose by more than $1 billion to $6.785b when compared with the $5.386b lent in August 2019.
However, First National principal and REINZ Rotorua spokeswoman Ann Crossley said the issue wasn't the number of houses being sold or the demand for property, it was the number of buyers not being able to get finance from the bank.
Crossley said she sold a property recently which had 11 offers on it and it was the fourth contract in place that got it.
"That person wasn't subject to finance, the first three were.
"The impact of that, other than the first three potential buyers missing out, is that the vendor is waiting much longer for their house to sell.
"The average length of time to get an agreement over the line right now is 15 working days. The vendor with 11 offers had three months of their property being under contract and not going through until it sold to that fourth buyer."
Crossley estimated more than 50 per cent of houses being sold in Rotorua at the moment were going to back up offers.
"If the banks say they haven't changed their criteria then I'd say they are applying those criteria much more strictly which is translating to more rejections.
"We had a seasoned investor turned down by his bank the other day so it's not just first-home buyers being affected."
However, Crossley said strict banks, coupled with low housing stock and a market that had outgrown its first-home buyers' grant limit had made it much harder for first-home buyers to get on the ladder.
"What I am hearing is that banks are looking more closely at builder reports and if that report shows the need for some building maintenance, and the buyer has applied to borrow the maximum amount, banks are declining the application on the grounds that the buyer won't have the money to fix the house.
"With the first-home buyers' grant limit in Rotorua being $400,000, you're not going to get something tidy that has no maintenance needs, so many potential buyers are now saying they have to forfeit the $5000 from the grant so they can buy above $400,000.
"Banks don't want to be the bad guy, they're only trying to protect their asset, that's understandable but it has made it so much harder for first-home buyers."
Ray White Rotorua co-owner Anita Martelli said she believed the increase in sales going to back up offers was a combination of banks declining applications and banks taking longer to approve applications.
"Even with pre-approval, we are telling buyers to ask their bank how many days they need to approve their finance. Some banks are still getting finance through in five to 10 days, others are asking for 15 or even 20 days.
"The banks are pretty busy, some buyers can't get an appointment for weeks.
"It is also in the buyer's best interest to know what amount they can go to when putting in an offer to reduce the risk of their finance being declined."
Martelli said the current market was hard for first-home buyers and more people were willing to do back up offers because of the chance the first offer would fall through.
However, The Mortgage Centre's Graeme Leigh said 100 per cent of the applications he had submitted for his clients in the past 12 months had been approved by banks.
"I am not seeing an increase in declined applications at all. I've been a mortgage broker for 21 years and what I think is more likely is there are too many people with a high amount of high-interest short-term debt.
"I have had some clients who are missing out on houses but it's not because they haven't got the finance, it's because there is so much competition out there."
Leigh said mortgage brokers had a better chance of securing finance for a potential buyer than when a buyer went directly to the bank.
"If a buyer puts an offer on a property and then their finance gets declined by the bank, they don't have time to go to another bank to try to get approved. With a broker, if one lender declines, we have the ability to duplicate the application and send it to another without the wait time.
"The problem is finance dates are very short, some sale and purchase agreements require finance in five working days which is a ridiculously short amount of time. If a buyer can't see the bank manager for a week, they've run out of time.
"These finance dates need to be extended to reflect the current climate."
Kiwibank borrowing and investments product manager Richard McLay said by July and August, the number of new Kiwibank home loans in the Bay of Plenty had recovered to pre-Covid levels.
"While there is an increased focus on the customer's ability to service any new lending, we have not materially tightened any of our lending criteria since Covid hit in March.
McLay said nearly 30 per cent of Kiwibank loans for new property purchases in the Bay of Plenty this year went to first-home buyers.
A Westpac NZ spokesperson said the bank was open for new lending and continued to assess all applications on a case-by-case basis.
"We haven't changed our lending criteria as a direct result of Covid-19, but we regularly review our policies to ensure they offer the best possible support for our customers."
An ANZ spokesman said: "We're still ready to support customers into their new homes, but, as always, we have to make sure we're supporting customers to make good borrowing decisions – particularly with higher LVR lending."
He said because first-home buyers tended to have a smaller deposit and therefore typically borrowed more than 80 per cent, these borrowers, "need to show that they have good residual income after mortgage payments and expenses as a sign that they can withstand any adverse changes in their household financial situation".
"As can be the case even before Covid, the customer's circumstances may change between the assessment and issuance of the pre-approval and seeking finance for a potential purchase.
"This is why we ask customers to contact us before putting an offer in on a property as it allows us to reconfirm the circumstances surrounding the potential borrowing."