Banks operate as profit-focused businesses with reputations that don't always reflect reality. While their primary objective involves making money and building industry leadership, they remain fundamentally sales-oriented. Consequently, they're unlikely to recommend strategies involving multiple financial institutions. Here are two recommendations that banks typically won't share.
Tip 1: Couples Should Distribute Income Across Different Banks
Recent Reserve Bank of New Zealand regulations have significantly impacted banking practices, particularly regarding mortgages. These rules serve multiple purposes. Some, like loan-to-value ratio ([LVR) restrictions](/blog/what-does-lvr-mean), prevent bubble-like scenarios reminiscent of 2008.
The Responsible Lending Code requires lenders to confirm they acted responsibly when approving loans. Banks currently calculate mortgages at 7.5% to accommodate potential interest rate increases. They assume 25% rental property vacancy rates, accounting for potential shortfalls and expenses like maintenance.
These considerations become especially relevant for "grey zone" applications-those on the lending boundary. Examples include:
- •Negative credit history (even if resolved)
- •Borrowing exceeding 80% LVR
- •Significant reliance on rental income or government benefits
- •Self-managed construction projects
How Banks Select Grey Zone Borrowers
Mortgage advisers consistently report that banks favor existing customers over new applicants. Banks possess substantially more information about established customers, enabling better-informed decisions.
What Qualifies as "Existing Customer" Status?
Banks consider accounts as "main banks" when salary deposits occur there. Income must remain deposited for at least three months (sometimes six months) before qualifying.
Joint Account Strategy
Couples planning future purchases should deposit salaries into completely different banks. Maintaining a joint account for expenses works well-transfer spending money there while conducting personal transactions through separate institutions to demonstrate active customer status.
This approach provides couples with two banks viewing them as "existing customers," potentially increasing leniency regarding lending policy flexibility. Ultimately, this strategy doubles success odds.
Tip 2: Business Accounts and Mortgages Should Remain Separate
Businesses experience difficulties, and banks employ staff monitoring business activity. Many business owners maintain Revolving Credit account limits-perhaps $20,000 to $30,000-buffering against downturns. Banks retain rights to remove these if lending would create problematic situations.
Logically, the bank accessing business trading accounts shouldn't also control mortgage limits.
Case Study
One client maintained a $300,000 Revolving Credit funding a large business's slow months. Upon login one day, the limit had disappeared. The bank indicated knowledge of an upcoming slow quarter and decided removal was necessary-information originating from the business partner, not the client himself.
Another institution provided mortgaging and reinstated the Revolving Credit.
Protect Your Financial Options
For first-home buyers or those purchasing with deposits below 20%, consider placing salary deposits with a different bank than your partner. This establishes two cleaner mortgage-hunting options.
Additionally, evaluate whether combining business banking and mortgage services with one institution serves your interests wisely. Maintaining separation provides important financial protection during business challenges.
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