Brave new world in home help

Big drops in house prices are going some way to creating a buyers' market.

But many kept on the sidelines by sky high prices are now excluded by lenders' miserly rationing of credit.

Where lenders were once up for 95 percent and even 100 percent or greater loans, 80 percent is the best they'll now do, so we are told.

That's not quite the case say mortgage brokers, as the select few can still bust the 80% loan to value ratio.

Here are some ways to do it.

Be income-rich and job secure

Dominic Davis from Mortgages By Design says borrowers need to be realistic about what is available.

"Borrowers should think of anything above 80 percent as a bonus. A loan above 90 percent is almost a miracle, 95 percent a miracle and 100 percent is out of the door," he said.

But lenders have indicated in some cases that they are willing to bust the new 80 percent line in the sand.

Davis said Westpac - one of those still willing to do deals - told him if a borrower was a real estate agent and his wife was in hospitality, they would be "singing in the wind" for a loan over 80 percent. Two people in safe professions - doctors, for example - would have a better chance but even then there was no guarantee.

Banks are worried prices could contract so fast they would erode the bank's security (and potentially their credit ratings as result).

Even if a lender were to go to 90 percent or more for a professional couple, they would find the sum they could borrow reduced, as the banks have raised their debt servicing ratios - usually expressed as the percentage of income that it takes to meet mortgage repayments.

Charlie Reid from Mortgage Link said: "35-40 percent might not be considered strong enough to justify a loan of over 80% [LVR], but if it is 25% that would be seen as strong."

There can be an extra cost to the higher loans. Kiwibank, which says "the door is still open" for higher LVR loans, adds an extra 0.2 percent onto the rate paid by borrowers over the 80 percent mark at the point the loan is taken out.

Reid said because they both reinsure some of the risk of higher LVR lending, both Kiwibank and SBS are still able to go above 90 percent more freely than other lenders.

Have a good broker/be a good talker

"There are no hard and fast rules any more," Davis said, which means having a broker as an advocate can make the difference in getting an application past the line, even with your own bank. The truth is that there are always people who can get a loan when someone else in the same position does not. These are the deal-makers and natural born negotiators of the world.

William Cairns of Cairns Lockie said there were still a few second mortgage lenders around, although Bluestone, Liberty and Pioneer had vanished from the market. If a person can borrow 80 percent from a bank, for example, a second mortgage lender might lend a further 5-10 percent. They will rank behind the first mortgage lender in terms of security, and so charge a higher interest rate, and usually want to be paid back at an accelerated rate.

Cairns said most residential second mortgage lenders tend to be private finance companies owned and backed by wealthy individuals and accessed only through specialist brokers. Cairns said they tend to charge 14 - 16%.

Have a pristine record and a long history with your bank

Davis said those wanting to go above 80 percent stood a much better chance if they had a long history with the lender. Having said that, some lenders, like Kiwibank, will still look at new customers for such loans.

Guarantors or co-buyers

Those wanting to buy a home without a deposit, or much of one, can get their parents, for example, to sign a guarantee over the mortgage. That will see some portion of the mortgage, say 20 percent, secured against the guarantor's home in the event of a mortgagee sale. That gives the bank the security it wants.

It's not without risk, however, as the bank could end up selling up a guarantor's home. Many borrowers might decide that it is too risky a thing to subject their loved ones to. Davis is sceptical of such deals. He said guarantors would in many cases be in a better position if they were down as "co- borrowers" with a legal agreement for the other borrower to make the repayments. At least that way they'd have the right to check the mortgage account online, receive statements and be able to monitor repayments.

Be poor

There are two pertinent government schemes: The Welcome Home Loan scheme (available from Housing New Zealand, Kiwibank, SBS and other selected lenders) and the Shared Equity pilot scheme.

They are designed to help lower income households to buy homes. The first allows for loans of up to 100 percent (with the risk to the lender insured by the government). The second, which is a very limited pilot requiring potential borrowers to go through a ballot, allows households to buy part of their home with the government buying and owning the rest. It looks like a white elephant in a falling property market.

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