Banks make apartment buyers 'jump through hoops'
Banks are introducing higher hurdles for would-be home-buyers who want a mortgage, especially those hoping to buy an apartment.
BNZ recently told brokers that it would no longer offer standalone lending to people buying apartments smaller than 65 sq m.
"Given BNZ's strong existing share in this market, in March it was decided to tighten criteria on lending for apartments less than 65 sq m in size. In these instances additional loan security may now be required, but considered on a case-by-case basis with our customers," a spokeswoman said.
Most lenders had been allowing people to borrow for apartments as small as 45 sq m or 50 sq m before they required higher levels of equity in the deal.
It is part of a wider move by banks to tighten and more strictly enforce their lending criteria, driven partly by concerns about being near the top of the property price cycle and partly by their Australian parents' demands for capital.
Property investor and developer David Whitburn said banks were burned in the aftermath of the global financial crisis when investor loans on small apartments went bad.
Buyers should be cautious about small apartments, he said, because it was likely that lenders would tighten their restrictions on those properties further if they wanted to scale back lending – and that would make them much harder to sell.
"Most definitely," said Mike Richards, of City Sales. "I understand it is being driven by Australia, the screws are being tightened. They are really putting people through hoops now to get finance. It's getting tougher. They've never been kind to apartment lending anyway and it's certainly tougher right across the board."
He said his agency, a specialist in apartment sales, had seen more deals falling over because of finance. "Poor old first-home buyers, they want to buy a decent-priced apartment but they can't find finance."
His firm had tried to auction one in New Lynn, a 28 sq m unit with gym, pool and tennis court but had had buyers pulling out before the auction because they could not get a mortgage, he said.
Broker Glen McLeod said banks were tightening the rules around apartments but it was part of a wider shift in approach. They wanted to see higher rates of income from all buyers, he said.
"In general banks are making it harder for purchasers," Whitburn said. Banks were testing applications to see if people could service their loans at interest rates of 7.5 per cent, he said. He said that was a 50 per cent or even 80 per cent higher interest charge than most buyers would actually pay at the moment.
The banks said their decisions were made on a case-by-case basis. ANZ said it would lend up to 80 per cent on "standard" apartments.
Westpac said it often wanted more equity in the deal.
"We would normally look for a deposit of about 40 per cent for an over 50 sq m apartment and about 50 per cent for one 50 sq m or less; however, in some circumstances we would lend up to 85 per cent of the value for owner-occupiers of an apartment larger than 50 sq m and 65 per cent for owner-occupiers of an apartment 50 sq m or smaller."
ASB said it had made no changes.