Getting a mortgage with over 50% deposit headache (but Approved by BNZ!)

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Forums › Finance and wealth management › Getting a mortgage with over 50% deposit headache (but Approved by BNZ!)

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3885 posts

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#2160904 14-Jan-2019 13:13

jonathan18:
In the context of this thread (not saying that it applies to the OP's circumstances), this makes interesting reading:

Mortgage brokers say banks are taking a closer look at whether borrowers can afford to meet home loan repayments, with one bank now asking for a written declaration that the lending is responsible.

https://www.oneroof.co.nz/news/35842?ref=nzhhome

Some affordability rules actually hurt rather than help people in the long term. In some smaller towns, mortgage payments are similar to or even cheaper than paying rent. I even recall someone on another forum complaining that they were declined for a mortgage because the bank reckoned that they couldn't afford the repayments. Even though the repayments would have been less than what they were currently paying in rent. How does paying less money make something unaffordable?

It also doesn't take into consideration people who are happy to cut their expenses to the bone, as a means of getting into the housing market.

My mum gave me the opportunity to get into the housing market at just 22 years old. Thankfully bank lending rules back then were really lax, and a mortgage broker got me a low doc loan at standard interest rates, without me needing to prove
my income. 83% of my after tax pay went to the mortgage, and I was living on the edge financially for quite a few years. I now have over a million in equity, mortgage payments are less than rent on a similar house, and I will be mortgage free at approx age 40.

Yet according to the affordability rules. I would have been better off paying rent and being locked out of the housing market.

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surfisup1000

5288 posts

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#2160906 14-Jan-2019 13:16

Linux:

Just got off the phone from the bank manager and it's 100% reserve bank and they still can't proceed

John

Did they give you a reason? You don't have to say what it is, just whether they gave you one.

Linux

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#2160910 14-Jan-2019 13:21

eracode:
Linux:
Just got off the phone from the bank manager and it's 100% reserve bank and they still can't proceed

John

@Linux Do you understand what the rule is that’s blocking this and can you pass it on to us?

Gifting of money for deposit

John

jonathan18

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#2160920 14-Jan-2019 13:27

Aredwood: ... Even though the repayments would have been less than what they were currently paying in rent. How does paying less money make something unaffordable?

I'm not trying to say that some of these calls by banks aren't counter-intuitive, but it's important to acknowledge that the cost of owning a home is so much more than simply the mortgage payments, eg (off the top of my head):

rates - that's typically another few thousand a year.
repairs and maintenance; NZers are well-known for skimping on the latter, and on average spend way less than the amount recommended (I think it was BRANZ had a figure?); the former can be significant and can occur with no warning, so if a home owner doesn't have the money available when needed...
(relative over?)spending on non-critical renovations or redecorating...

surfisup1000

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#2160923 14-Jan-2019 13:28

Linux:
eracode:
Linux:

Just got off the phone from the bank manager and it's 100% reserve bank and they still can't proceed

John

@Linux Do you understand what the rule is that’s blocking this and can you pass it on to us?

Gifting of money for deposit

John

Wow, that really stinks! I would have thought this is up to the bank to decide, but for some reason the reserve bank considers gifted deposits to be a risk to the banking system.

nickb800

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#2160925 14-Jan-2019 13:33

jonathan18:

Aredwood: ... Even though the repayments would have been less than what they were currently paying in rent. How does paying less money make something unaffordable?

I'm not trying to say that some of these calls by banks aren't counter-intuitive, but it's important to acknowledge that the cost of owning a home is so much more than simply the mortgage payments, eg (off the top of my head):

rates - that's typically another few thousand a year.
repairs and maintenance; NZers are well-known for skimping on the latter, and on average spend way less than the amount recommended (I think it was BRANZ had a figure?); the former can be significant and can occur with no warning, so if a home owner doesn't have the money available when needed...
(relative over?)spending on non-critical renovations or redecorating...

This, plus interest rate fluctuations

Shoes2468

784 posts

Ultimate Geek

#2160928 14-Jan-2019 13:35

Linux:
eracode:
Linux:

Just got off the phone from the bank manager and it's 100% reserve bank and they still can't proceed

John

@Linux Do you understand what the rule is that’s blocking this and can you pass it on to us?

Gifting of money for deposit

John

Hmm, Buy something to the tune of the gifted amount say shares, then sell them for a similar return. The money is no longer gifted its return on investments.

tdgeek

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#2160930 14-Jan-2019 13:37

I read that if its a large gift, it causes a deprival of assets for the person who is giving. This might mean that ordinarily, if that person goes into care, that a % of his/her assets are taken. If the deposit gift was large, the Govt may see that as a deprival of assets and recall the gift back, which then leaves the house buyer at risk, and thus the bank.

mdf

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#2160932 14-Jan-2019 13:41

Linux: <snip> Gifting of money for deposit

Was it the gifting alone, or the gifting + 50% deposit that was the problem? Did the bank have any suggested ways of resolving the situation?

Linux

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#2160934 14-Jan-2019 13:43

tdgeek:
I read that if its a large gift, it causes a deprival of assets for the person who is giving. This might mean that ordinarily, if that person goes into care, that a % of his/her assets are taken. If the deposit gift was large, the Govt may see that as a deprival of assets and recall the gift back, which then leaves the house buyer at risk, and thus the bank.

Does not count in this case as advised my parents are cash and property quite well off

John

Linux

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#2160935 14-Jan-2019 13:44

mdf:
Linux: <snip> Gifting of money for deposit

Was it the gifting alone, or the gifting + 50% deposit that was the problem? Did the bank have any suggested ways of resolving the situation?

The RBNZ does not allow it and bank could lose it's banking licence they say

John

wellygary

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#2160936 14-Jan-2019 13:44

Shoes2468:

Hmm, Buy something to the tune of the gifted amount say shares, then sell them for a similar return. The money is no longer gifted its return on investments.

And you end up going down the AML rabbit hole... at the moment its all about gifting, trying to launder the money will hot help his cause....

ajobbins

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#2160941 14-Jan-2019 13:55

OK, so we have established that it's the gift that's the issue - not than you have > 50% deposit (which makes no sense in any context).

There is nothing *explicit* in the RBNZ rules, but there are a number of points of guidance that banks need to interpret. I wonder if the 50% the bank is referencing is actually "more than 50% OF YOUR DEPOSIT is coming from a gift", rather than more than 50% OF THE PRICE is the deposit. They *could* see this as a prudential lending risk factor (in their own assessment/interpretation of the banking regs). As mentioned before, other lenders may have a different interpretation - a broker can help you navigate this.

Also, at least here in Oz, once you've held the gift for either 3 or 6 months (depending on the lender), the banks no longer consider it a gift, and it's now just another asset you have.

You've mentioned your family have other assets - Something else to consider may be your parents guaranteeing the loan for a period of time (perhaps until the gift is considered fully yours). Not sure if that would work, but should be explored. Again, any half decent broker will be able to help you navigate these things.

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networkn

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#2160947 14-Jan-2019 13:59

So under what timeframe are you allowed to apply again without your prior disclosure affecting the decision did they say?

I guess potentially your parents could purchase the property and you service the debt, but I suspect the bank will be watching for "work arounds".

mattwnz

20045 posts

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#2160949 14-Jan-2019 14:02

tdgeek:

I read that if its a large gift, it causes a deprival of assets for the person who is giving. This might mean that ordinarily, if that person goes into care, that a % of his/her assets are taken. If the deposit gift was large, the Govt may see that as a deprival of assets and recall the gift back, which then leaves the house buyer at risk, and thus the bank.

If that is the case I can certainly see why banks would be cagey about it. I think this sort of thing is going to become more and more of a factor, as more and more older people retire and go into care, and want to look after their childrens future. It is the younger generation who nowhave to 600, 700, 800k plus for a house in a main town, due to how much house prices have risen so much and fueled by cheap credit and a number of other factors. Interest rates have dropped to historic low levels to make houses still affordable as long as people can maintain their job and the rates stay low. I also recommend people watch 'The big Short', about what happened in 2007-08

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