Newscaster: Hard-nosed banks are being blamed for an increasing number of house sales falling over in Auckland. The real estate industry says despite would-be buyers securing pre-approved finance, banks are turning down borrowers if the deal doesn’t meet their stricter criteria.
Emile Donovan reports.
Emile Donovan: At least once a week, Geoff Barnett from Century 21 Real Estate hears the same story. A home-buyer with preapproved finance and an accepted bid fails to secure the house because their bank won’t sign-off on the money.
Mr. Barnett reckons there’s a pretty simple explanation. Amid stagnating or even falling prices in parts of Auckland, banks are tightening up their lending.
Full Audio Interview (transcription below):
Respondent #1: Somebody that’s got $120,000 deposit, so they got pre-approved for their $500,000 mortgage. They’ll go out to find a property to buy around the 600,000 mark. They go back to their lender, who’s preapproved them, and then they get turned out, get told that, “Well, actually, yeah. We don’t quite value it to where you do, what you’re paying for it. We think that we’ll loan you 480.”
Emile Donovan: Bruce Patton, who’s a director at the mortgage broker Loan Market, says he too has seen a lot of deals fall through. He says part of the problem is prospective home-buyers thinking preapproved finance means they can borrow up to that limit.
Respondent #2: People have to be really careful that they’re actually getting a pre-approval which has verified their documentation to the point of giving them financing. Some people don’t do that, and they have this misunderstanding that they’re able to go ahead and buy without actually knowing that it’s 100% approval.
Emile Donovan: With banks also carefully scrutinising the ability of a borrower to repay the loan, Mr. Patton says this can seriously affect people with variable incomes.
Respondent #2: A very good example is a self-employed person that might disclose their income as 100,000, but in real terms, when they actually look at the financials, their income might have only been, say, 70,000.
When it comes time for them to provide the paperwork to the bank, the bank might then turn around and say, “Okay, well we preapproved you for 500,000 mortgage, however based on your actual income that we’ve now got on paper, your borrowing ability is actually 100 or 150 thousand dollars less than that.”
Emile Donovan: The head of Massey University’s banking studies centre, Claire Matthews, says borrowers should get used to banks adopting a conservative line on lending.
Respondent #3: There’s some evidence that the housing market in Auckland has started to cool, so the bank’s going to say, “Hang on. We’re just little movers here. We’re not expecting the growth, so let’s just take a little bit more cautious approach and not be quite so eager to lend as we might have been 6 months ago, 12 months ago.”
Emile Donovan: Home buyers have been increasingly turning to family in the last few years to get them on the property ladder. And as banks pull back more of their financial support, families may be asked to shoulder even more of that burden. For Morning Report, Emile Donovan.
Source: Radio New Zealand
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