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Banks are businesses and their goal is to make money and become the leading brand in the industry. This is the same goal as most other businesses and their reputation for money hoarding oligarchs is unjustified. But at the end of the day, they are still sales-focussed vehicles.

It goes without saying, therefore, that they are unlikely to give you advice that involves using multiple banks. As a result, here are 2 tips we often tell people that the banks won’t tell you.

Tip 1: Couples should put their income into different banks

In recent years, the Reserve Bank of New Zealand has implemented a host of rules on the banks, particularly around mortgages.  These rules have several purposes.

Some of them, like the LVR restrictions, are to stop the bubble mania of 2008 from happening again.  The days of lending 100% (or more) on a property are gone and not returning any time soon.

Some of the new rules, like the Responsible Lending Code, should just always have been there.  They require a lender to be able to hand-on-heart say that they were acting responsibly in granting a loan to the client.  Banks are calculating a mortgage at 7.5% to allow for future interest rate rises.  They also assume a 25% vacancy on rental properties which allows for some vacancies and other costs like repairs and maintenance.

These factors most often come up when a mortgage application is in, what I like to call, the “grey zone”.  The clients is just on the edge of what the bank are comfortable with.  Some examples of these grey zone applications are:

  • bad credit history (even if it has been paid)
  • >80% LVR borrowing
  • significant reliance on rental income or government benefits for income
  • self-managed builds

At first glance, none of these criteria are dealbreakers but the banks can only take on a certain number of these loans.  They also don’t want to be known for taking on grey zone loans.  If that happens, they end up holding a majority of those loans in the country which is obviously not preferred.

How do the banks decide who to give difficult or “grey zone” lending to?

Ask any Mortgage Adviser at the moment how to get a difficult application through the banks, they will answer the same way.  A bank is more willing to lend to an existing customer than bring on a new customer.  They have a lot more information on an existing customer and they are much more able to make informed decisions.

What constitutes an “existing bank customer”?

Banks count themselves as “your main bank” if your salary goes into one of their accounts.  I know most of you have just seen a loophole just now… why not just change the income to another bank who will say yes to my difficult application. Unfortunately income needs to have been deposited for at least 3 months (sometimes 6 months).  Don’t think you can change your salary payment tonight and be an existing client tomorrow.

Our book “The Successful First Home Buyer” walks you through each step to present yourself to the bank as the perfect first-home buyer. Available in paperback at The Book Depositary or on Amazon Kindle.

Should I have my accounts at the same bank as my partner?

It’s therefore a good strategy to have couples, who are looking to buy in the future, put their salary into different banks.  You can still have a joint account but my suggestion is that you put your salaries into completely different banks and then transfer the spending money into the one account.  Maybe put your personal spending through the different banks to really show that you are an existing customer.

With this strategy, you’ve now got 2 banks who think of you as an “existing customer” and are likely to be a little more lenient on you if you have to push the limits of their lending policy.  A Mortgage Adviser will still be able to tell you which bank is better to approach first.  Either way, with this strategy, you’ve doubled your odds of a successful outcome.

Tip 2: Your business accounts and your mortgage should not be at the same bank

Bad things can happen in business and there are employees at the banks who’s job is to monitor business activity. This can seem overbearing but ask yourself the question: if you had loaned someone significant amounts of money, wouldn’t you want to know how they were doing?

A lot of people keep a Revolving Credit account limit available that can fund business downturns. They may have $20k or $30k (often significantly more) available as a buffer for a slow month or quarter. But the banks have a right to remove this if they feel that that amount of lending would put their client in a bad decision. The time that this is most likely to happen? When a business isn’t doing well! Exactly when a business needs the cash!

It makes sense then that the bank that has access to your business trading accounts shouldn’t have access to your mortgage limits. It doesn’t happen day in and day out but it is still a prudent safety measure for your finances.

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Case Study

A real example from our experience: One client of ours had a $300k Revolving Credit that they used to fund slow months of a large business they owned. One day he logged in and found the Revolving Credit limit gone. When he queried the bank they said they had had a heads up regarding a slow quarter and they had decided to remove the Revolving Credit limit. It wasn't even him that gave the bank the heads-up, it was his business partner!

Some of this decision could be down to an overly risk adverse Business Banker, and some of it could be Bank Policy. Either way, another bank was happy to offer him a mortgage and have his Revolving Credit reinstated.

Summary

Tip 1: if you're a first home-buyer or likely to purchase with less than 20% deposit, consider putting your salary with a different bank to your partner. This will give you 2 options cleaner options when you are hunting for a mortgage.

Tip 2: consider if having your business banking and your mortgage at the same bank is a wise idea.

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