Library fines kept family on sidelines of NZ property market
Friday, 24 December 2021
Reports of first-home buyers being declined home loans under tough new lending laws bring back bad memories for Wiremu Bayliss.
Mortgage brokers claim new responsible lending laws introduced on December 1 to protect vulnerable people from irresponsible lenders are creating an 'artificial credit crunch', preventing young buyers from getting the loans they needed to get on to the property ladder.
Borrowers' experiences echo Bayliss' own in the credit crunch the country suffered in the wake of the global financial crisis (GFC) a decade ago, which left a scar on his financial life that has never healed.
As banks cut lending in the GFC, Bayliss found himself turned down for a loan that would have seen him buy his first home in Porirua. The reason for the decline was a four-year-old $17.50 unpaid library fine logged on his credit file.
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The fine was a mistake, because he had returned the books, and it was later wiped from his record, but the black mark against him was enough to end his dream of owning a home.
'It was a chance to get that first step on to the property ladder. Even back then it wasn't cheap, but it wasn't anywhere as expensive as it is now,' Bayliss said.
He's watched since as home prices have spiralled out of reach.
'There's a two-bedroom duplex just up from us just sold for $720,000,' he said.
There was a decent amount of equity in the home he and his wife were trying to buy a decade ago, and, he said: 'We would have been paying less on a mortgage than we were paying in rent, so we would have been in a better position.'
It wasn't even a big loan, just $249,000, easily within reach of the adult education institution campus manager, and his teacher wife.
A friend in the banking industry told him at the time the bank was more interested in making larger loans, and Bayliss thinks he may have missed out for that reason, with the black mark on his credit file being just an excuse for the bank.
Bayliss believed his experience served as a reminder of the impact home lending decisions by banks can have on individuals' lives.
'It's that position of power that they are in,' he said.
'The property market has just got further and further away,' Bayliss said.
In the last three years alone, he said, the family had paid around $100,000 in rent.
Mortgage broker John Bolton has been gathering support from fellow brokers and aspiring first-home buyers to get home loans excluded from the tough, new lending laws, which require lenders to gather more evidence that people can afford the loans they apply for.
Bolton said the law changes had prompted banks to become 'ultra-conservative' in their lending decisions, restricting families' access to loans.
While lending volume figures to confirm brokers' fears the laws have created an artificial credit crunch have not yet been published by banks or credit reporting agencies, brokers supporting Bolton have been sharing stories of the hurdles borrowers now face to get loans.
Auckland mortgage adviser Karen Tatterson from Loan Market gave the example of a woman she's trying to help to get a extension loan to add a flat to her home for her adult daughter.
The woman's elderly parents had been too afraid to go to the supermarket in recent months, Tatterson said.
So the woman had been doing their shopping for them, and they paid her back after each shop.
But, Tatterson said: 'The bank allocated all the grocery expenses to her, but not the credits.'
As a result, it declined the loan, saying her expenses were too high, she said.
'The stories circulating within the industry just have people shaking their heads,' Tatterson said.
Linda Eagleton, another Loan Market broker, said Christmas spending had become a problem on one a loan application she was handling.
The bank had looked at the last three months of the couple's spending to calculate their average monthly expenses, but it did that including Christmas spending.
'We itemised the transactions that were Christmas transactions. We said you shouldn't divide those transactions by three because they aren't three-monthly expenses. They are annual expenses. The bank disagreed,' she said.
As a result, the borrowers were not offered a loan large enough to buy the home they wanted.
Banks were going over people's budgets with such fine detail, people who wanted to borrow needed to see brokers at least four months in advance of a loan application for guidance on how to alter their spending to best suit banks' application processes, Eagleton said.
Waikato mortgage broker Lincoln Davie, from Quantum Finance likened the sudden contraction of bank lending criteria to the impact of the GFC.
'I really don't think the Government has thought through these changes. It's going to create an artificial credit crunch,' he said.
'We aren't in danger of running out of money. The banks have more money than they know what to do with. This is an artificial credit crunch caused by policy changes,' he said.
The impact would not be just first home buyers, but people wanting to move homes, or borrow money to launch a business, of invest in an existing business.