Mortgages are getting harder to come by and home buyers and investors won’t be able to assume this year that they’ll automatically get approval, as has been the case for most of us in recent years.
If you don’t believe it, then listen to the words of Alan Bollard, governor of the Reserve Bank, who warned right back in March of last year that borrowing has been cheap in recent years and “at some point will revert to more normal financial conditions”. That’s exactly what’s happening now, with even lenders admitting it publicly.
There is not just one factor behind the tightening of credit. In part it’s thanks to the credit crunch in the US where lenders jumped on the bandwagon of offering Adjustable Rate Mortgages with introductory rates as low as 1% or 2%, that later reverted to a high floating rate if buyers couldn’t remortgage. Sadly many of them were overextended financially and couldn’t and the lenders were left with large numbers of defaulting borrowers.
Fortunately lenders in this country were never as irresponsible as their US counterparts. Even so, our mortgage providers here have sat up and taken notice of what has happened.
Over and above the credit crunch, a number of New Zealand finance companies, a source of mortgage money for many non-standard borrowers, have stopped lending. More than 10 have simply gone out of business, and those left that rely on debenture investments from the public are struggling to raise any money.
Sadly investors’ memories are short. We often forget what life was like at a different stage in the investment cycle. For the past few years banks and non-bank lenders have been falling over themselves to offer easy finance for house and investment property purchases.
Not so any more say commentators such as Kieran Trass property market analyst of Hybrid Group and James Lockie, general manager of Cairns Lockie, a specialist mortgage provider.
Lockie points out that it is getting more difficult to obtain finance for projects such as residential section subdivisions and spec building development. And Trass adds that even the mainstream banks are becoming more selective.
The tightening of the mortgage market won’t just affect people like me who need new mortgages this year. It affects home owners and investors indirectly as it is one of the many factors that can lead us into slump. When it gets harder to borrow money, buyers disappear and prices can fall as a result.
Have you or friends had trouble getting mortgages? What is your experience?