As part of our 5 challenges (and 5 fixes) that your company is facing today in New Zealand’s building industry series we present the feedback given by a leading Auckland based mortgage broker below:
4 Challenges facing home loan borrowers
1. Reserve bank capital and LVR controls: Go against first home buyers as banks have limited quota to allocate and borrowers have lower deposits and borrowing power
2. Buying off-plan and apartments: Two of the hardest categories to borrow against are off-plan houses and apartments, both of which are entry point housing for first home buyers and this again limits access to first home buyers.
3. Age discrimination: Changes around “responsible lending” has restricted those over 55 who have capital from borrowing. This demographic is now treated as income neutral at 65 and therefore, holding debt beyond 65 is limited.
4. Discretionary expenses: Changes around “responsible lending” have caused an overcompensation by lenders around the treatment given to discretionary lending. As such expenses are generally being overstated in reviewing borrowing capacity.
5 Challenges Facing Home Developers
1. Presales: Banks looking for 100% debt cover from pre-sales. This becomes hard to achieve due to home buyers not been able to easily get loans financed off-plan. We have a shortage of housing but very risk adverse bank measures.
2. Capital Markets: Poor capital market structure with the New Zealand banks under capitalized and non-banks not representing competition (largely small family-owned operations not institutionally capitalised). Also, very much Auckland centric. Hard to find funding outside of Auckland.
3. Timing issues and fixed price contracts: The effects of material shortages and cost increases are driving lenders to increase contingencies. This makes many projects commercial unviable.
4. Build to rent: Bank treatment of build to rent is negative. Expectation is that developer sells product on completion rather than hold to rent.
5. Turnaround times for engineering approval “EACC”, Water Care connection and works over approval: Has an adverse effect on ability to transfer title and settle. Houses left vacant for months.