Advisers face interest-only lending restrictions
Brokers have noted an uptick in cases where customers have been unable to roll-over or get new interest-only facilities. IO facilities are commonly used by property investors.
Kiwi advisers say established customers with existing facilities have been put through stringent new servicing tests, and later rejected. It comes after the Australian Prudential Regulation Authority (APRA), enforced a limit on Aussie lenders issuing interest-only mortgages last year. APRA allows up to 30% of a bank's loans to be interest-only. Interest-only lending has plunged in Australia since.
The Advice Group’s Stephen Wilton says pressure from Australian regulators had forced banks to restrict interest-only products in New Zealand: “Lenders are putting entire lending portfolios through a principal and interest repayment [calculation] at an inflated interest rate, significantly inflating the shortfall required to get these things servicing on banks' calculators. They are getting declined, and the banks are telling us the client can’t afford it.”
Wilton says the issue is “prevalent” this year. He adds: “We had a problem where the bank declined a proposal for a client to sell their property and pay down their mortgage, because they apparently couldn’t afford the mortgage they’d already got.”
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