Deep Singh lived on white bread for several weeks, thinking he had to do so to qualify for a home loan under the government’s tough new lending rules.
The Wellington man says he ate once a day – losing 8 kilograms in the process – and worked seven days a week at two jobs. He shut down his social life, only going out to attend house tours.
Despite pre-approval in late October, he expected the bank to look into his statement and payslips once he made an offer on a house, under the law’s controversial new requirements. on credit agreements and consumer financing (CCCFA). The changes, which took effect in December, saw banks take an ultra-cautious approach to lending, rejecting home loans for expenses like Uber Eats or therapy.
“I had to limit my spending and a loaf of white bread costs $1,” the first-time home buyer explained.
But hours before Singh was considering bidding on his dream home, ANZ canceled his pre-approval for a different reason.
* First home buyer says he ‘lived like a hermit’ to get approval under new mortgage rules
* Dreams shattered as home loan approvals plunge after changes to lending law
* Kiwibank withdraws low deposit home loan pre-approvals
The bank told him in an email that it had to comply with “tightened Reserve Bank (RBNZ) rules” for low-deposit loans.
“I begged them to extend it, even by just one day – they said they couldn’t,” Singh said.
The RBNZ requirements came into effect on November 1, reducing the availability of low-deposit mortgages and requiring banks to lend no more than 10% of new loans to people with less than 20% deposit.
Singh’s pre-approval was based on a 10% deposit – and was granted days before the new rules came into effect.
Briar McCormack, ANZ’s senior director of external communications, said the bank wanted to honor the deal but was having a hard time.
Demand for low-deposit loans soared after RBNZ rules came into effect, with pre-approvals being converted to settlement “at around 125% of historic rates” in December and January, she said. declared.
This meant that, to comply with the new regulations, ANZ had to “suspend a small number of existing pre-approvals” for low-deposit loans. “For a very small group of customers whose pre-approvals expired before February 1, we unfortunately withdrew those pre-approvals in mid-January,” McCormack said.
For Singh, the timing was tight. Its pre-approval was not due to expire before the end of the month, and ANZ had given no indication that it would cancel sooner.
He was aggrieved to barely miss a rare opportunity: a two-bedroom house within budget and within walking distance of his family in Upper Hutt. “It was a perfect opportunity – I literally could have dropped by and visited my niece and nephew.”
And the starvation months were “wasted efforts”, Singh said.
McCormack was surprised that Singh “felt the need to drastically cut expenses”.
Timaru man Samuel Pearce discovered that getting a mortgage and buying a house is no small feat.
“Unless the client’s financial situation changes significantly before they withdraw their loan, we generally wouldn’t need to reassess affordability after giving pre-approval,” she said.
Financial Advice New Zealand’s managing director, Katrina Shanks, was not surprised. The membership organization received 300 responses in two days from mortgage advisers who had seen a change in the availability of credit for their clients. And that anecdotal evidence was now backed up by hard data.
Credit reporting agency Centrix analyzed the figures and found that the proportion of successful home loan applications had fallen from 36% to just 30% since the lending rules came into force. And earlier this week, RBNZ reported that lending across the board fell by $1 billion.
“It indicates that the CCCFA is making it much more difficult for the average Kiwi to get a mortgage,” Shanks said.
Originally, the CCCFA was presented as a way to protect low-income borrowers from unscrupulous loan sharks. The RBNZ changes, meanwhile, were aimed at curbing house price inflation.
Economist Shamubeel Eaqub said the two policies were designed to “reduce risky lending”.
By design, this meant that low-to-moderate income people “would have a much harder time borrowing money.” Lending restrictions could, however, “break an addiction to cheap credit,” Eaqub said. “Unfortunately, this will hurt young people and first-time buyers.”
The solutions for these groups were longer: more houses, greater density, better infrastructure, affordable housing. There were no satisfactory short-term solutions. “It’s extremely unfair and illustrates how broken our housing system is,” he said.
Trade and Consumer Affairs Minister David Clark said anecdotal evidence suggested the CCCFA had posed “a greater challenge for some parties”.
He ordered an investigation into the impact of tougher new lending laws.
Meanwhile, Singh continues to skip meals as he seeks pre-approval for a new loan. He earns $150,000 a year, yet BNZ, Kiwibank and TSB said no. Even second-tier lenders – with higher interest rates – are reluctant to lend.
ANZ said it would again provide pre-approvals for low deposit loans as soon as “as soon as we can”.
Singh thinks saving a 20% down payment could take years, even on his salary. He doesn’t know if he can last that long.
“Even last night, I didn’t have a meal. I didn’t have breakfast this morning,” he said. “Whenever I feel like I’m ready, the goal posts move away.”