Non-bank lender shares initiatives
As rising interest rates put the squeeze on borrowers, Bluestone provides solutions that can help customers avoid mortgage stress, and ultimately being forced to sell their home.
Speaking at a Financial Services Council webinar in February, in response to a question on the risk of mortgage stress, Reserve Bank of New Zealand chief economist Paul Conway confirmed the estimated percentage figure across the New Zealand housing market was 3.5%, noting that high LVR restrictions had “generally kept the quality of the housing book pretty high”.
Sue Griffiths (pictured above), Bluestone’s head of sales New Zealand, acknowledged that in the current rising interest rates environment, the official cash rate having risen 10 consecutive times (a total of 450 basis points) since August 2021, mortgage advisers were increasingly the “jam in the sandwich”.
With high inflation translating to cost of living pressures and a risk of recession, many clients were under financial pressure, and their advisers were in effect, their counsellors, she said.
“If we look at the New Zealand landscape, we are facing the challenges of a significant increase in our OCR, which is at the highest since 2008,” Griffiths said.
Griffiths said that the market had moved swiftly, from a period of record-low interest rates (and rising house prices) to a refinancing market.
According to Infometrics data, 11% of fixed rate lending rolls over between January and March, 14% between April and June, and 30% over the second half of 2023.
“Advisers are looking after customers coming out of a situation where they had incredibly low interest rates in the 2% range, and they’re coming out onto 6’s and 7’s,” Griffiths said.
Helping borrowers improve their financial position
To help borrowers at risk of mortgage stress, Griffiths said Bluestone had worked on two interest-only solutions to help them navigate the current period of rising interest rates.
There are also alt doc options for self-employed borrowers.
For existing customers, Bluestone has implemented an easy process to assess their ability to repay interest only, with limited supporting documents, she said.
“We have also identified customers want more flexibility, so we are working on providing more interest only terms, from one to five years,” Griffiths said.
Another area of focus for Bluestone is small business owners, who Griffiths acknowledged were grappling with the increase in the minimum wage ($22.70 per hour from April 1), a tight labour market and reduced cashflow and/or increased costs following the Anniversary floods and Cyclone Gabrielle.
For self-employed customers, Bluestone has alt doc options that allow GST returns, an accounts letter or one year’s financials to be used to verify income.
“We can use different types of information to help certify their income (rather than the standard requirement of two years’ of financial statements),” Griffiths said.
Cohort of borrowers not tested at higher rates
When the 0.50% official cash rate rise was announced in February, brokers told NZ Adviser that lenders were stress testing in the 8% range.
Current standard mortgage floating rates across the main five banks range from 7.74% to 7.99%, standard one-year fixed rates from 6.54% to 7.14%.
“When those low interest rates were out in the 2% and 3% range, lenders were assessing them at around 5% ... now their interest rates are at 6.5%,” Griffiths said.
“Interest rates are now higher than what we were stress testing them at, making some of those loans unaffordable.”
Griffiths said she expected many borrowers in this position to have difficulty servicing their loan.
Non-banks such as Bluestone have tiered mortgage stress rates, which Griffiths said were based on the risk of the loan.
Hardship enquiries on the rise
Griffiths said Bluestone had started to see more hardship enquiries come through but acknowledged that some borrowers did not meet standard hardship criteria.
“Typically, when [borrowers] come to us they’re at a point where they can’t afford their mortgages (at least not on their existing rate),” Griffiths said. “If borrowers don’t qualify for hardship, we then move them into a collections team.”
The collections team is able to work with the borrower to establish their need and find a solution, she said.
