Couples Should Use 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 changes 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 “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.
I have accounts with lots of banks. 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 workaround but unfortunately this needs to have been happening for at least 3 months (sometimes 6 months). Don’t think you can change your salary payment tonight and be an existing client tomorrow.
Couples should use separate banks
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 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.