Housing

Waiting for mortgage approval? You’re not alone

Rock-bottom interest rates mean the housing market is booming, bank staff are coping with a barrage of Covid-related customer enquiries, and are nervous about giving mortgages to people who might lose their jobs or their businesses. That adds up to frustratingly long waits for customers wanting a home loan.

Once upon a time, it was pretty quick to get a decision on your mortgage. You went to your bank with your documents and within a few days - sometimes even hours - you had an answer, yay or nay.

Not any more. If you apply for a mortgage today, it probably won’t even get to the top of the (probably digital) loan approvals pile at the bank for a couple of weeks, mortgage brokers say. 

And then you are going to be asked a whole lot more questions before you get a green (or a red) light, particularly if you are self-employed.

Anyone that’s going to be needing a home loan needs to be prepared for the new normal, and get finance sorted early, real estate agents say. And the process might be frustrating.

“Pre-Covid, the approval process was taking three to five days in total,” says Andre Hutley, owner of Wellington-based property investment and mortgage finance company Vantage NZ. “Now it’s generally taking 10 working days for the banks to pick up an application, sometimes more. Then they come back with questions and that can take three to four more days.”

That could mean three weeks before customers get a decision.

Why the wait?

Part of the problem is so many people are wanting to buy a house - first home buyers, property investors, returning New Zealanders, people who realised during lockdown they wanted to live somewhere else. And the boom is fuelled because low interest rates mean houses are about as affordable as they have been for half a decade. 

Bank research and ratings company Canstar uses median house prices, average disposable income and interest rate figures to calculate monthly home loan affordability. 

Its figures (below) show at an interest rate of 3.39 percent (the average for January to September 2020), mortgages as a percentage of disposable income fell to 29 percent, a figure last seen in 2016. 

At 2.94 percent (the average for August), that percentage of disposable income drops to 28 percent. 

If it reaches 2 percent, which isn’t impossible, it will be 25 percent.

There are other tensions in the market, notably a limited number of houses for sale and the uncertainty caused to people’s incomes by Covid, Canstar general manager for New Zealand, Jose George says. 

But money is cheap. "If you can afford it, now is the best time to be in the market for a house.”

Busy at the bank

There are other reasons banks are taking longer to process mortgage applications. One is that bank staff, including people on the mortgage teams, are already busy with dealing with requests from other people needing help with their existing mortgages, including wanting mortgage 'holidays'.

“It’s a timing thing,” says mortgage broker Bruce Patten of Loan Market. “The banks didn’t expect a massive increase in mortgage enquiries when Covid hit - people were predicting the housing market to fall.

“But with the Reserve Bank saying they are not going to increase the OCR [official cash rate] for a year - and it could be down for three to five years, even a decade, depending on the long-term impact of Covid - the market couldn’t be more different.”

Banks also didn’t expect so much demand to be coming from brokers, who are reporting business 20-30 percent up on normal - possibly because overworked bank call centres and shuttered bank branches are pushing more potential customers to use brokers. 

The banks have committed to “resourcing up” their mortgage departments, says Matthew Nauer, group sales manager at Mike Pero Mortgages. But it takes at least a month to take on someone from another company, and at least six weeks to train up someone who hasn’t worked in the area before.

In the meantime, Nauer has seen people missing out on a house because they haven’t been able to get a mortgage in time. Sales and purchase agreements often have finance conditions which give the buyer 10 days to get their mortgage sorted and delays at the bank can scupper a deal.

Mortgage brokers suggest real estate agents haven’t been keen to give buyers longer than 10 days, although Real Estate Institute chief executive Bindi Norwell says there is flexibility in the sale and purchase agreement to extend the deadline to 15, 20 or even more.

“But purchasers have to balance the need to put their ‘best foot forward’ in terms of the offer they are making on a house. If they extend the finance clause there is the chance there could be a better offer, timing-wise, and they could miss out.”

Tough questions

It’s not just the timing. Banks are much more cautious about lending in the uncertain economic climate, and are asking more questions, Hutley says. Whereas in the past, they were happy to approve a mortgage on the basis of someone’s pay slips or their company’s end-of-year financial statements, that’s no longer enough.

“They are looking at applications in a lot more detail than in the past. Income is everything. If you are self-employed, it’s really tough in terms of questions.

“They don’t just want financial accounts to March 31, now they also want a year-to-date profit and loss. They want to know what situation the business is in.”

If a company has applied for the wage subsidy, that’s going to raise red flags with the bank, Hutley says, because that means income is down.

But salaried workers are facing tough questions too. “Banks are asking clients to confirm if their income has been affected by the Covid lockdown and do they expect any changes in the future.” 

In some cases, banks have asked people for letters from their employers about the stability - or otherwise, of their job situation, Hutley says.

ANZ spokesman Stefan Herrick agrees there’s strong demand “and some of the conversations are more complex than usual due to Covid. 

“We’re finding some customers’ circumstances have changed and we’re requiring more information to make an assessment.”

Is that frustrating? “You have no idea,” Hutley says.

But it’s not surprising.

Bank caution

While cash is flowing freely now, that could all change with the end of wage subsidies, says Canstar’s Jose George.

“At the end of the day you want banks to be cautious. Economists are expecting higher unemployment when subsidies finish and you don’t want banks to be losing money.”

Norwell agrees. 

“In the context of a global pandemic, the applications for mortgage ‘holidays’, and the sheer volume of applications they are currently processing it’s not entirely surprising that it is taking a bit longer to process finance applications.”

Given the delays, buyers should be getting in touch with their banks as soon as they start house hunting, and keeping the lines of communication open through the process, she says. 

In the meantime, the delays at the bank don’t seem to be calming the market, Norwell says.

“Looking at our data, sales volumes for July were the highest for the month of July in five years which suggests that in actual fact the slow down in mortgage approvals isn’t actually impacting sales.”

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