Banks are running serviceability tests based on customers’ current income, even if they have been temporarily furloughed due to the crisis, or put on reduced hours during the lockdown, advisers report.

Advisers say some banks are not accepting past earnings, or projected future earnings, while calculating serviceability.

This approach makes it difficult for borrowers to complete home purchases, pay for new-builds nearing completion, or refinance mortgages during the Covid-19 lockdown. The issue was highlighted in a recent survey of the lending market conducted by independent economist Tony Alexander. For debt-servicing ability, current virus-constrained income levels are being used, not expected income levels in the future when things are expected to be better, he reported.

“In some cases, anticipated bonuses, overtime, commissions are not being considered for income projection and therefore debt-servicing ability purposes.“

In other words, ability to get a mortgage has been cut for anyone out of work clearly, but also anyone experiencing an income drop or reliant on other than base wages and salaries.

”Advisers warn that the shift from banks will make it more difficult for borrowers to refinance or take out a loan with a new bank. But they say borrowers with existing lender relationships have not been affected so far. Q Group’s Geoff Bawden says it’s not fair. “You can look at it two ways; you can look at their income base at the moment, or realise it is not going to stay that way forever. There’s probably a half-way measure they could take.”

And things could get even more difficult for self-employed borrowers, Edge Mortgages’ Glen McLeod warns. “The banks are not going to take last year’s income, and I believe they will have to justify what their income is going to be, how it has been affected by Covid-19, and the assumptions for earnings over the next 12 months.

“This is different to the GFC. While it wasn’t a financial crisis to begin with, there will be a huge financial impact."

Meanwhile, NZ Property Investors’ Federation executive officer Sharon Cullwick is concerned that banks are working against the efforts of theb Reserve Bank.She says that while the Reserve Bank is temporarily lifting LVR restrictions to stimulate the economy, the banks are testing borrowers on virus-constrained income and using high serviceability tests.

“This is making the obtaining of loans more difficult. It will continue to delay home purchases and new buildings and will stall the market.”