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In this article, Velocity Finance Director Graham Goodisson discusses why banks are currently rejecting more borrowing applications, and provides no-nonsense tips for how to make your application successful
Firstly, let me just say that I love my mother to bits (hi Mum..) but growing up, my Mum was tough. Real tough.
In our household, the answer “No!” was used a lot more than “Yes”(which to be fair, was justified, given the little ratbag that I used to be...Love you, Mum.)
So why exactly are banks like my mother, you ask?
Today, banks are behaving like tough mums. They are saying “No,” a lot, especially to borrowing applications. And you throwing your toys or having a sulk will not help that either.
The current credit policy for banks is becoming much more like "What's wrong with this application?” rather than “What's right?” This means that banks are saying “No” much more often and, getting a yes out of the bank can be as difficult as extracting a yes out of a tough mum.
Currently New Zealand Banks are experimenting with how to implement new lending legislation the CCCFA, (Credit Contracts and Consumer Finance Act). This means that line by line analysis of all your bank statements as a minimum.
The current credit policy for banks is becoming much more like "What's wrong with this application?” rather than “What's right?”
There is also a strong suggestion from the Reserve Bank that Debt to Income Ratios be used. Essentially, your ability to borrow will be limited by your income. Your maximum mortgage amount will be the household salary, multiplied by somewhere between 5-8 times.
Sir John Key (who happens to be the Chairman of the Bank that lends more money than any other Bank in New Zealand) has come out swinging about house prices and lending levels.
So, how do you deal with a tough-loving bank? My advice: Get your ducks in a row to improve your chances.
Reduce your spending. If you are looking to borrow, what you spend your money on matters to the Banks. So, if you are thinking of a applying for a new mortgage or a new investment property, dial down the spending for a bit.
Keep your credit cards in check. Keep your credit cards under the limits and make the payments on time each month. Banks will know even faster than mum if you don't run your accounts like this.
Meet with your broker to develop a lending plan going forward. Build the borrowing strategy ahead of time.
Borrow off several banks. Do not have all your lending at one bank. Following a diversified lending strategy is key to keeping control over your investments.
Make a plan. Just like when I needed something off Mum, like the car for date, my chances of success were much higher when I had a plan for my approach. It is the same here. Make a plan. If you already have one, then review the plan. Ask yourself, “Is my current borrowing fit for purpose? Or can I pay the debt down if I need to, but grab it again if necessary?” Your adviser will be able to guide you on this.
Borrowing in future will get tougher, there is no question about that. But don’t panic. This is just part of the lending cycle, and sometimes even tough mums, and tough banks, do say yes.
With borrowing becoming tougher, that makes us Brokers more valuable than ever (I do love that), however for me as a borrower, it does make it all more frustrating (don’t love that part so much).
Luckily, I have a very good Broker. He works for Velocity Finance, and his mum said “No” a lot! Today, he is very good at getting a “Yes!”
Graham
About Graham
Hi there, I’m Graham and I started Velocity Financial 20years ago. I had for many years been running youth development programmes for The Salvation Army and I liked the idea of continuing to help people thrive in other areas of their lives. It started with helping first home buyers, and I now work mostly with business owners. This is around planning, lending, and managing risk for them and their staff. I am passionate about community and connecting those in need with opportunity. I’ve been very privileged to do this in my previous career, now in my business and for 20 years as a Trustee of the Te Aro Health Clinic. Our clinic delivers high quality health care for Wellington's most vulnerable and I'm proud of the fact that Te Aro is now an integral part of Wellington City Health system. I work in New Zealand's two best cities, Tauranga and Wellington. In Tauranga I swim, bike and run (YOGA if I'm feeling particularly aware!) and in Wellington I mostly buy my adult children dinner and drinks.
Disclaimer
Graham Goodisson (FSP95428) is a Financial Adviser with Velocity Financial (FSP95466). No investment decision should be taken based on the information in this blog alone. Please see Graham’s disclosure statement on our website.