Hopeless task for borrowers

SIMON DAY
Last updated 05:00 06/10/2013

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House-huting got even harder for those trying to break into the market with banks drastically tightening their lending, giving some borrowers just 30 days to find a property before their loan pre-approval expires.

The big four banks have all clamped down on pre-approvals - a system where prospective home buyers can go looking while knowing how much their bank is prepared to lend.

Those affected say house-hunting will now be "absolutely impossible".

The tightening is a response to new Reserve Bank rules attempting to put the brakes on the housing market. The measures limit the number of borrowers who have saved only enough for a 10 per cent deposit.

Before the crackdown, pre-approvals gave customers up to six months to find their home and use their loan.

BNZ has made the biggest move, reducing its pre-approval period for loans over 80 per cent to just 30 days. ASB, ANZ and Westpac have all reduced the duration of some new pre-approved home loans to 60 days.

One Auckland couple who bought their first home just before their ASB pre-approval was cancelled believe others will find it impossible to go through the property purchase process within the new, reduced time limits.

Alastair Aitchison, 23, and Nicole Bladen, 20, put in six hard months of searching before they found their new home in Massey, one day before their loan expired.

The task now facing first-home buyers is "impossible, absolutely impossible", says Aitchison.

In their six-month search the couple found themselves competing with up to 50 other would-be purchasers. They lodged five failed bids before succeeding.

Once a bid was lodged and a conditional sales contract signed it could take 10 days to get the checks and finalise the sale - all eating into the time limit of the pre-approved loan.

"You're not going to find a home you like in two months within your price range," Aitchison said.

The banks have reduced the validity period of the loans to ensure they do not breach the new Reserve Bank limits on how many low-value mortgages they have on their books. A large number of pre-approvals over 80 per cent have also been called in.

The reduction in the validity period of the loans was a natural response by the banks, says John Bolton, principal and adviser at Squirrel Mortgage Brokers.

"By shortening it [the banks] reduce the risk by having a spike in volume. That is just them adjusting to the massive pipelines of pre-approvals that they have to manage quite carefully."

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