Delayed new homebuyers risk losing deposits due to tougher lending laws, brokers say


Mortgage brokers report times of nervousness for people who have made down payments on homes that haven’t yet been completed.

This was because some had to re-apply for their bank loans, and if they were turned down, they could lose their deposits, brokers said.

People buying off-plan homes made a down payment to developers after getting loans approved by banks, but those approvals had expiration dates, after which they had to be reapplied.

Brokers generally said that wouldn’t be a problem, but the new, stricter lending laws that came into effect on Dec. 1 and rising interest rates meant some people risked having their applications turned down by creditors. banks.

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Auckland Mortgage Advisor Karen Tatterson said she had clients in this position.

In some cases, Auckland’s construction delays have been caused by government restrictions in the fight against Covid, Tatterson said.

Once a buyer became die-hard on buying a new home, if they couldn’t close the deal by securing financing, they risked losing their down payment, she said.

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The Monetary Policy Committee increased it from 0.25 percent to 0.75 percent.

Tatterson said she spoke to a bank about one of her worried customers.

The bank said it had a “moral obligation to honor” these transactions, she said.

BNZ and Kiwibank said they would honor such “in-the-fly” deals, but the picture was less clear in other banks, she said.

“I see a lot of people who won’t qualify for the new policies, but because the bank approved it and a deposit was made on that basis, the bank will have to honor the deal.”

“Imagine the situation where a young couple paid a deposit of $ 65,000, and then they went back to the bank, and the bank said no, and they had to walk away and lose their deposit. There would be an uproar, ”Tatterson said.

The new loan laws, designed to prevent lending to “vulnerable” people by unscrupulous lenders, have been criticized by brokers for ushering in ultra-conservatism in banks, and have led John Bolton, managing director from mortgage broker Squirrel, to petition for new laws have changed.

But while there have been claims that have led banks to deny loan applications, the data to prove the claims has yet to be released, and the change in law has coincided with the Reserve Bank of New -Zeeland Te PÅ«tea Matua imposing limits on small-cap loans granted by banks.

Mortgage broker John Bolton has started a petition on Change.org to have the new loan laws revised.

Provided

Mortgage broker John Bolton has started a petition on Change.org to have the new loan laws revised.

The introduction of the new loan laws also coincided with an increase in interest rates on home loans and higher “test” rates that banks use to calculate affordability for borrowers.

That meant people could find out the bank was willing to lend them less than when it first approved a loan to buy back the plan, Tatterson said.

Mortgage broker Campbell Hastie said there was a risk in buying unfinished homes from developers as loan approvals lasted a maximum of 12 months and developments often took longer than buyers expected.

“Most people who sign up for an off-plan build take a little time in this regard,” Hastie said.

A lot could change in 12 months, which could change the likelihood of a bank re-approving a loan, he said.

People’s income could drop or they could get pregnant. Or the laws on loans could be tightened.

“It’s just how over the last four months there have been a lot of changes. It really is a homecoming for some people, ”he said.

Banks typically set deadlines for loan approvals for people buying off-plan homes, which have yet to be completed.

Stacy Squires / Stuff

Banks typically set deadlines for loan approvals for people buying off-plan homes, which have yet to be completed.

An ANZ spokeswoman said that as a general rule, a client with an approval would not need to go through the re-application process unless there is a material change in the terms of the approval. approval, such as an increase in the loan amount or the expiration of the approval.

“If there was a material change in the terms of approval – for example, an increase in the loan amount due to an increase in construction costs – we would reassess the request,” she said.

The bank advised everyone to seek legal advice before reaching a deal on new construction, she said.

A spokesperson for Westpac NZ said if a borrower’s pre-approved loan for new construction is not used within a certain time frame, the bank must reassess.

The bank would work with clients who had already made a down payment on a case-by-case basis to review options, he said.

A BNZ spokesperson said once a client unconditionally went to a turnkey property and paid the deposit, the bank would honor the loan whether or not construction took longer than 12 months. .

“In situations where the client’s circumstances have changed significantly during construction, we work with the client on a suitable solution,” he said.

A Kiwibank spokesperson said he would only reassess the situation if a customer’s financial situation changed.