Could private school fees stop you getting a mortgage?
Sending your kids to private school could lead to having your home loan application turned down.
Auckland mortgage broker and LoanPlan principal Christine Lockie said she had received calls from frustrated Kiwis whose mortgage applications had been turned down because their lifestyle costs were too high.
Spending habits, like dishing out thousands for private schooling, were now more likely to lead to an application being declined thanks to new banking regulations, she said.
Lockie said New Zealand banks had changed their credit policies "almost overnight" to comply with the Responsible Lending Code.
"All of these clients have the equity and they all have high incomes and disposable cash, but the banks are looking first at lifestyle and the cost of that lifestyle, and if they think it's a bit extravagant, they're going to turn you down."
Historically, New Zealand had low interest rates and more first home buyers were emerging but banks had become more strict on their credit policies than they had been in years, she said.
Banks were focused on what was available at the end of the month, once all expenses are accounted for.
For example, a couple with a high income – and paying top rates for a rental property – may not have anything left over at the end of the month because they have private school fees, she said, adding that a client had come to her with this particular issue.
LOANS TURNED DOWN FOR MANY REASONS
Tuition fees alone at New Zealand's most expensive private school, Auckland's King's College, will set parents back more than $24,000 if their child is in year 12 or 13.
If the student is also boarding at the school, families are looking at shelling out almost $38,000 for tuition and living costs per child each year.
But principal of Auckland private school Diocesan School for Girls Heather McRae said she had not heard of parents having loan applications denied because of school fees.
"Turning down loans will be for many reasons so to draw a link to private school fees is rather spurious in my view".
Tuition fees for high school students at Dio are about $20,000 not including things like enrolment costs.
McRae said each school had its strategies for helping and supporting parents who had difficulty with school fee payments.
"Many independent schools have supportive communities, trusts and willing donors who help support families in our communities.
"We do a lot of philanthropic work to support people and to offer opportunities for families from low income families who wish to choose an independent school option."
As for fee increases, McRae said private schools paid more to the Government in GST than they received in financial support so increases were needed "to sustain the highest performing private school system in the world".
BANKS DENY CHANGES TO LENDING
Meanwhile, the country's banks say they haven't changed their lending policies.
ANZ spokesman Pete Barnao said the bank had not changed its policy to crack down on lifestyle costs.
"We continue to lend responsibly, ensuring customers can comfortably meet their repayments."
Kiwibank and ASB also said they had not changed their credit policies.
But Lockie said in her experience, banks were raising the threshold of financial discipline they expected from customers.
The changes made it important for Kiwis to demonstrate good bank conduct over a reasonable amount of time, she said.
"Un-arranged overdrafts, high credit card debt – even if you can reasonably service that debt – and how much you spend, and what you spend it on, are now very important criteria for securing a mortgage or further bank lending.
"Dare I suggest it's a nanny state type of approach to lending?"
Guides and information on borrowing can be found on the Banking Ombudsman's website.