What is it like to apply for a loan these days?

The “Matthew effect” is very real for many in the home loan market.

In the biblical parables, Saint Matthew said: “For to everyone who has it will be given and it will multiply.”

But people who have little will get little, and when it comes to mortgages, that means few deposits and not enough in terms of income.

When the government tightened rules on responsible lending, banks said they had to turn down more loan applications, but mortgage consultant Campbell Hastie says it’s not the tougher rules that prevent potential borrowers from getting loans.

Home loans are harder to get

“More important things that turn customers off and also quite useful are the test rates and LVR limits of the Reserve Bank,” Hastie says.

Test rates are notional interest rates that banks use to calculate whether people can afford loans.

Following the announcement of a $1.42 billion after-tax profit, ASB chief executive Vittoria Short said the bank’s test rate rose from 6.45% to 7.85% between October and July as the Reserve Bank raised the official cash rate. by 225 basis points.

This made life difficult for people with smaller deposits or whose incomes weren’t growing as fast as the test rates.

People eligible for smaller loans

Hastie says he was recently approached by a couple with a newborn who needed more space and thought they could afford it because the mother was returning to work.

They had a $600,000 mortgage, Hastie said, and assumed they could borrow much more.

But they received their current loan when the bank test rate was only 5%.

When the banks returned from their affordability checks, which included child care expenses, the couple were offered just $50,000 in loans.

“Those two things cost her $90,000,” Hastie says.

“There are a lot of people who would like to make a move but can’t because the test rate has gone up and they can’t borrow more than they already have.”

People who own a lot of shares and bought many years ago are still getting the loans they want, Hastie said.

The same Matthew effect is being felt among new buyers. Those with large incomes and large deposits do better.

“The pot of money for low-deposit buyers from banks is smaller than it used to be,” Hastie says.

But he encourages people to talk to a broker anyway.

One week more to get a mortgage

Clarke’s rules were intended to prevent lower-tier lenders from making irresponsible loans to vulnerable borrowers.

But while Short said the rules continue to discourage lending, Hastie says they’ve now taken root, and banks and brokers have learned to live with them.

In the early days of the new rules, it took banks many weeks to process loan applications.

Now the period of time from the moment when the potential borrower came to his office, until the bank made an offer, has been reduced to two weeks.

It took about a week before the rules were introduced in December, he said.

Deep dives

Under Clark’s rules, the credit review process became more prescriptive, which meant paying closer attention to the details of people’s income and expenses.

There have been stories about the amounts people spend on things like fast food that prevent them from getting mortgages.

But Hastie says banks are now willing to make reasonable written commitments that people will spend less on certain things.

“If your KFC habit becomes a problem, we’ll tell the bank, ‘We’ve talked to the customer and they’re going to change their behavior,'” he says.

“We are not going into oblivion. It’s unrealistic. Everyone will have a little crazy money,” he says.

Consumer loans, car loans

Credit Information Bureau Centrix says demand for credit is starting to come back as extreme consumer pessimism begins to recede and more people are willing to try to get credit.

But Lyn McMorran, chief executive of the Federation of Tier 2 Financial Services, says it’s still pretty tricky out there.

“People are definitely more cautious about loans at the moment with the cost of living,” she says.

And its members, which include lenders like Avanti and Instant Finance, are still turning down loans because of Clark’s rules.

She estimates that about one in ten people who would have received a loan before the rule change no longer gets it.

Financial educators have successfully lobbied the government to tighten regulations, providing evidence that lenders are not conducting proper credit screenings, leading to financial hardship for borrowers.

According to McMorran, the lending process has become very intrusive.

The loans are least likely to qualify for marginal borrowers, but if they can’t get a loan from one of its members, McMorran fears they will turn to less scrupulous and law-abiding lenders.

3 minutes 30 seconds to get a $1,500 loan

One type of credit that hasn’t gotten harder to get yet is buy now, pay later on a revolving credit account, though this may change.

Clark is expected to announce within weeks how he will regulate the BNPL, but with over a million people already holding an account, the changes could be devastating.

Financial mentors told the minister they see people in financial distress, with multiple BNPL accounts, with debts they don’t have the income to service.

But it only takes a few minutes to apply for a BNPL account, and because BNPL loans have no interest, they are not subject to responsible lending laws.

Getting a BNPL loan online can take as little as three and a half minutes without an availability check.