Bank Caution Vexes Prospective Home Buyers

At least once a week, Geoff Barnett from Century 21 real estate hears the same story. A home-buyer with pre-approved finance and an accepted bid fails to secure the house because their bank won’t sign off on the money.

Mr Barnett reckons there’s a pretty simple explanation: amid stagnating or even falling prices in part of Auckland, banks are tightening up their lending.

“Somebody that’s got a $120,000 deposit gets pre-approved for a $500,000 mortage; they go out and find a property to buy around the $600,000 mark; they go back to their lender, who’s pre-approved them, and then they get turned down.

“They get told, ‘well, actually we don’t value it to where you do. We think that we’ll loan you $480,000’.”

Loan Market director Bruce Patten, a mortgage broker, said he too had seen many deals fall through.

He said part of the problem was prospective home-buyers thinking pre-approved finance meant they could borrow up to that limit.

“People have to be really careful that they’re actually getting a pre-approval which has verified their documentation to the point of giving them finance.

“Some people don’t do that, and have this misunderstanding that they’re able to go ahead and buy without knowing that it’s 100 percent approval [that’s needed].”

With banks also carefully scrutinising the ability of a borrower to repay the loan, Mr Patten said this could seriously affect people with variable incomes.

Massey University banking studies centre head Claire Matthews said borrowers should get used to banks adopting a conservative line on lending.

“There is some evidence that the housing market in Auckland has started to cool, so the banks are going to say, hang on, we’re a little nervous here.

“We’re not expecting much growth, so let’s just take a little more cautious approach and not be so eager to lend as we might’ve been six or 12 months ago.”