Credit policy continues to tighten

Wallet being clamped

Right now, being a bank customer without using an advisor must be a nightmare. Bank interpretation of the RBNZ rules continues to vary from lender to lender, credit policy continues to tighten, deals that were easily approved late last year are potentially now not being approved and the war on price appears to finally be coming to an end! Being an advisor in this market with constant change is hard enough. I have sympathy for clients who are trying to keep up.

Unlike during 2007 to 2010 when demand was low and appetite from banks for funding was also low, we find ourselves in an interesting situation where demand for funding is high however, appetite from banks is still low (and getting lower). There is no clearer evidence of this than in a recent policy change from one of the banks that saw minimum apartment sizes increase from 40m2 up to 65m2. Based on this, it’s not hard to guess which part of the market the banks are nervous about.   

The potential issue with this is if other banks follow suit and leave ‘off the plan’ apartment developments in a risky position, where the end buyers are now having to deal with bank policy changes that may hinder their ability to settle on their purchase, given the need to renew the approval prior to completion. We have already seen this in Australia in recent times.

So, not only is the appetite from banks funding the mid to large scale apartment developments pretty much halted, it means simply getting it off the ground is a challenge. Policy changes like these mean the end buyer market is smaller – or developers just need to build fewer but bigger apartments, meaning their profit margins decrease.

It’s easy to look at the big policy changes such as LVR restriction and point to these as the reason for a “market slow-down”, but my opinion is it’s these smaller internal credit policy changes (which don’t get the media attention) which are slowing things down faster. They are causing a state of unknown in the buyer market meaning these buyers are taking longer to make decisions, or simply sitting on their hands. This is not necessarily a bad thing. The fast paced decisions with little thinking is part of the reason prices have risen so sharply in the first place.  

I think now (more than ever) is the time to be surrounding yourself with experts who will help you get where you want to go. I am seeing record numbers of clients seeking out mortgage advisors which signals to me that there is less confidence and less understanding of where the market is currently at. Again, I don’t think this is a bad thing. Seeking advice before making a decision can only be good.