What are you seeing with the bank financing environment?

[Chris W]

Wondering what people are experiencing, seeing, hearing with banks with respect to financing for residential real estate investment.

Some questions under consideration:

1) are banks reviewing and reassessing the market values of the existing property collateral they hold?
2) are banks asking for more collateral?
3) are banks strictly enforcing the 60% LVR for investors across your whole portfolio?
4) are banks allowing equity release when you sell your investment property?
5) is it more difficult to extend the maturity of an interest only mortgage?
6) is the credit approval process taking longer or shorter?
7) are banks reducing your home equity credit line facilities?
8 ) any other observations about the bank financing environment

[Bobsyouruncle]

My 2 cents worth
1) are banks reviewing and reassessing the market values of the existing property collateral they hold?
They have made some recent changes to make more things a "credit event" so they can reassess your position. We asked to keep a loan on IO this week and they said that is now a full "credit event".
3) are banks strictly enforcing the 60% LVR for investors across your whole portfolio?
No
4) are banks not allowing equity release when you sell your investment property?
Providing you are under 60%
5) is it more difficult to extend the maturity of an interest only mortgage?
YEs see above.
6) is the credit approval process taking longer or shorter?
Longer and more info required
7) are banks reducing your home equity credit line facilities?
Only if you are over 60%

[brokerman]

All Banks are tightening up with a mix of RB intervention and in-house changes. As #2 above.
The non Bank sector is thriving and depending on the application rates start at 4.94% fixed for two years so really competitive.
Approvals definitely taking longer and once approved valid for shorter periods. This is prudent as lenders need to know what their drawdowns are likely to be as they have internal reporting plus of course external to the Regulators.
Only 15% of our business is currently gong to Banks!

[Grads]

Notified personal banker (ASB) of pending sale this week and loan will be repaid this month etc (just heads up of situation)

received reply (looked to be cut & paste) of blah blah about reviewing portfolio and must be 60% lvr max etc. What I didn't like was the final comments about bank taking ALL settlement proceeds of sale etc..

The way banks are acting they will continue to lose business (have had two business bankers contact me lately regarding catch up etc). Volumes are down outlook is not good. Non bank lender would be better option for those highly leveraged.

[Davo36]

A family member had a $150k loan on a property worth around $2million. Commercial property with over $100k net pa coming in.

Loan was with BNZ, term came up for renewal. BNZ wanted full information of all properties held, loans, accounts etc. etc.

Family member refused as too much hassle etc. Would take a fair bit of time and cost.

BNZ were adamant it had to be done. So family member paid off the small loan with some cash they had with another bank. BNZ lost a customer. No apologies or correspondence from them after this was done at all. Like they didn't say "Why did you pay the loan off?" or "Sorry we didn't realise we'd lose you as a customer". Nothing.

Seems to indicate banks are tightening up. Perhaps getting a bit worried?

[sidinz]

A family member had a $150k loan on a property worth around $2million. Commercial property with over $100k net pa coming in.

Loan was with BNZ, term came up for renewal. BNZ wanted full information of all properties held, loans, accounts etc. etc.

Family member refused as too much hassle etc. Would take a fair bit of time and cost.

BNZ were adamant it had to be done.

That's just nuts. Maybe some overly-bureaucratic pen-pusher who can't think for themselves?

[Chris W]

A family member had a $150k loan on a property worth around $2million. Commercial property with over $100k net pa coming in.

Loan was with BNZ, term came up for renewal. BNZ wanted full information of all properties held, loans, accounts etc. etc.

Family member refused as too much hassle etc. Would take a fair bit of time and cost.

BNZ were adamant it had to be done. So family member paid off the small loan with some cash they had with another bank. BNZ lost a customer. No apologies or correspondence from them after this was done at all. Like they didn't say "Why did you pay the loan off?" or "Sorry we didn't realise we'd lose you as a customer". Nothing.

Seems to indicate banks are tightening up. Perhaps getting a bit worried?

Many residential property investors have structured their affairs to avoid the one bank trap. I suspect that banks (and senior bank management) want to know the full credit exposure a borrower has across all their lenders to get a more accurate assessment of the credit risk, rather than just single bank exposure that they see. If the borrower is too indebted across all lenders, and the LVR is too high over their whole portfolio, then that raises the risk of default overall. Especially if the borrower has turned to using non bank lenders as they were turned down from the bank lenders. Without full disclosure the banks are in the dark and are unable to assess the true credit risk.

I have heard of one real estate property investor using 6 different lenders and I assume that he tries to stay underneath the bank's radar screen to avoid being reclassified as a business or commercial borrower. If they knew his overall debt exposure, then the banks might have a different credit risk assessment.

Given how Auckland residential property prices have plateaued or even fallen in some suburbs, then this may have given rise to the bank's increasing concern. If property prices in Auckland fall further, then some LVR's based on recent property market transactions, might be reaching say 80-90% which might be too small a buffer for banks to be comfortable with, especially given that the economy isn't even in a recession. A property buyer who bought properties in October 2015 when the LVR lending limits were 80% and borrowed at that level (do you remember the bidding frenzies at auctions then? and banks were scrambling to lend to customers ...) has their current LVR at about 70% due to market price increases since October 2015 - if the market price was to drop by 10%, then the LVR would be back at 80%. Now this is before any recessionary environment where credit losses typically rise ...

If you're a bank depositor with large cash balances with the BNZ then you might be heartened to hear that the BNZ is reviewing credit risks. After all in the open bank resolution, your deposits are at risk if the bank's losses overwhelm all junior loss absorbing capital, similar to finance companies collapses in 2007/2008. Remember back in the 1990, when BNZ almost collapsed due to credit losses and the NZ government injected NZ$380mn ...

[brokerman]

RANT. As the Banks tighten up more people are using non Bank sources for funds. Would the Lawyers and Accountants stick to their jobs and stop advising that a non Bank solution 'carries a greater risk' than the Bank. B*ll*cks! Rant over, as you where!

[Bobsyouruncle]

What is the risk BM?

[brokerman]

There is no difference whatsoever, as long as the terms of the Offer are adhered to, same same. Pees me off, two this week where I've spent hours sorting out messes caused by misinformed 'professionals'.

[Bobsyouruncle]

I assumed they meant insurance in even to of default by the lender.....

[brokerman]

I assumed they meant insurance in even to of default by the lender.....

One Accountant, who is known, said to a Client that if it did not say XXX Bank it could not be trusted!

[Wellington Broker]

RANT. As the Banks tighten up more people are using non Bank sources for funds. Would the Lawyers and Accountants stick to their jobs and stop advising that a non Bank solution 'carries a greater risk' than the Bank. B*ll*cks! Rant over, as you where!

Not sure how this works. The lender of the funds is the one taking the risk. If you're borrowing you are the risk.

[Wellington Broker]

That's just nuts. Maybe some overly-bureaucratic pen-pusher who can't think for themselves?

Nope. A lot of this stuff is coming down the line from the Reserve Bank. The banks are being 'prudent' to avoid debt-to-income limits coming in. Full assessments on rollover of facilities are becoming much more common.

[eri]

Not sure how this works. The lender of the funds is the one taking the risk. If you're borrowing you are the risk.

the "risk" for the borrower

isn't that no one will want the money back, someone always wants that!

the risk is that the loan that banks won't touch won't be rolled over at the end of its term

and as we don't have 30yr mortgagees here most loans need to be rolled over at least 3? times over their life and through 3? recessions

ie a new non-bank lender decides to start up in nz

let's call it "pyramid loans"

having been turned away from the regular banks in nz for a million at 5%

pyramid lend you a million at 5.2% fixed for 3 years

18 months later the world economy slides, pyramid collapses and its loans are bought by "ruthless capital" of the cayman islands

6 months before your loan is due ruthless send you a letter saying they will not be renewing your loan so please have the million ready so they don't have to fire sale your properties...

of course all the banks can do this but try very hard not to as it looks bad to their other customers + gov.

gov. also tries hard to keep bank mortgagee sales down as it's a bad look for their command of the economy

ruthless + the gov. don't care if you bit off more than you could chew

heck, ruthless probably even set up a new operation to attend the nz mortgagee sales and try and pick up your houses at 80 cents on the dollar