Oct 12, 2016 1:00:04 PM

Lenders tighten up following changes to LVR

Topics: Finance Update, Mortgages, NZ Finance, Bridging Finance 0

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A number of banks are tightening up on lending in the wake of a cooling property market, with lenders more reluctant now than ever to do bridging finance. And could those holiday snaps actually make your insurance more expensive? Find out more in this month’s finance article.

Banks tighten up on bridging loans
It’s becoming tougher to borrow money to buy a new house if you haven’t already sold your current home, as banks tighten up on finance for bridging loans particularly to Aucklanders.

As a direct result of the cooling property market where we’ve already seen a big drop in the number of properties available for sale, many banks have begun tightening up on lending conditions, and buyers are finding it harder to secure bridging finance.

With fewer homes for sale many buyers are reluctant to sell without securing a new home first. But the reality is with auction clearance rates dropping, buyers face the risk of being left with two properties and a large mortgage, or even having to sell their existing home for less than expected.

According to the Real Estate Institute of New Zealand, the number of residential sales in Auckland in September was 20 per cent lower than the same month last year, and noticeably auction clearance rates have dropped to about the same level as last October when the Reserve Bank imposed lower LVR restrictions. While auctions are still well attended, there appears to be a widening rift between owners’ expectations and what buyers are prepared to pay.   

As banks continue to tighten up on lending, it’s more important than ever to look at all of your finance options. Working with a mortgage adviser can make the difference as they’re not limited to working with just banks – many non-bank lenders are still providing bridging finance solutions for buyers wanting to buy a new home before selling an existing one.

Could your social media posts impact your insurance premiums?
According to Michael Naylor, a senior lecturer in finance and insurance at Massey University, yes they essentially could!

Mr Naylor says in the future insurers will be looking to mine social media accounts in order to determine how much to charge for insurance premiums and whether or not to pay out on claims.

"People have to be aware everything they do on social media can be effectively public."

"You can set privacy settings, but of course they can be hacked."

And just why would insurance companies want to mine social media data to find out about us? It’s all got to do with the adverse selection problem. Insurance companies have no real way of differentiating between those with “good” attributes (low risk) and those with “bad” attributes (high risk), so to minimise their risk it makes sense for them to assume that everyone is high risk.

In order to avoid an adverse selection problem, insurers could screen potential clients by mining their social media posts, revealing exactly which clients are high risk and which are low risk. That way those identified as high risk will pay higher premiums, while those identified as low risk will pay lower premiums.

While New Zealand is not yet set up to deal with this type of screening process, Mr Naylor says it’s only a matter of time as it’s already being done in the US. Factors like the cost of the person to do the research have held back this type of screening in the past, but image identifying apps are making it cheaper and more likely.

Mr Naylor predicts New Zealand is about one to three years away, and while it may not affect those with existing insurance policies, it could impact new clients taking out insurance policies for the first time. This change could have implications for those seeking out adventure when younger as they would need to prove they no longer undertake those activities in order to qualify for insurance.

Insurance companies are already warning home owners not to post holiday plans on social media as they could be in breach of their duty of car policy provisions for house and contents insurance. Tightening up on your privacy settings on your social media pages could help filter out who has access to your social media posts. There’s little doubt that social media plays a big part in our lives and it’s only a matter of time before industries, like the insurance industry and others, start using this information.

Do you need help with bridging finance?
If you are in the market to buy a new home and have already found your dream home, or you’re not sure whether bridging finance is the right option for you, get in touch with our mortgage experts to help you plan your finance.