You earn a good income, have a reasonable deposit, and your expenses are under control. One bank tells you it could lend $650,000. Another looks at the same household and comes back considerably higher or lower.
How can the numbers be so different?
It happens more often than people expect.
New Zealand banks all operate within the same broad lending environment, but they do not assess every borrower in exactly the same way. Each lender has its own policies around income, expenses, existing debt, property type, and how much room it wants to leave in your budget after the mortgage is paid.
That is why the bank you choose can sometimes make a very real difference to your borrowing position.
The Same Income Does Not Mean The Same Borrowing Power
One of the easiest mistakes to make is assuming mortgage borrowing is simply a calculation based on salary.
It is not.
Two people earning exactly the same amount could have very different borrowing capacities because the bank looks at the entire financial picture.
A household with two children, a car loan, a credit card limit and childcare costs will usually be assessed differently from a household earning the same income with no dependants and very little existing debt.
Even when two borrowers appear similar, the result can still change between lenders because each bank runs its own affordability assessment.
For a first home buyer trying to establish a realistic budget, getting first home buyer mortgage advice before house hunting can help avoid relying on a figure from one lender that may not reflect the wider market.
Every Bank Has Its Own Serviceability Calculation
Banks do not assess your mortgage using only the interest rate you will actually pay.
They also test whether you could cope if rates were higher. This is generally referred to as a servicing or test rate.
The important point is that lenders can use different calculations and assumptions when deciding what is affordable. One bank may leave more room in its calculation than another. Its minimum household expense assumptions may also differ.
That can create a surprisingly large gap in the final borrowing figure.
Reserve Bank lending restrictions still sit over the banking sector, including debt-to-income and loan-to-value rules, but those rules do not tell a bank exactly how much it must lend an individual customer. A lender still has to decide whether your particular application fits its own credit policy.
Banks Can Treat Your Income Differently
This is one of the areas where lender choice becomes particularly important.
Straight PAYE salary is usually the easiest income for a bank to assess. Things get more interesting when your earnings include:
- commission
- regular bonuses
- overtime
- allowances
- rental income
- boarder income
- contracting income
- business or self-employed income.
One lender may accept a greater proportion of a consistent bonus or commission history. Another may take a more conservative approach.
The same applies to self-employed borrowers. Banks can differ in the financial periods they assess, the adjustments they are prepared to make, and how they interpret changes in business income.
That is why someone with a perfectly healthy business can receive two quite different answers. If your finances do not fit neatly into a standard PAYE application, self-employed and specialist lending advice becomes particularly useful.
Your Expenses Can Be Assessed Differently Too
Banks need to understand what it costs you to live.
Some expenses are straightforward. Others are where lender calculations begin to vary.
Property rates, insurance, childcare, dependants, subscriptions and other regular commitments all feed into affordability. Banks may use the expenses you declare, their own minimum household assumptions, or a combination of the two.
Then there are existing debts.
A credit card can affect borrowing even if you pay the balance off every month because the available limit may still be treated as a potential liability. Personal loans, car finance, student loans and Buy Now Pay Later commitments can also reduce the amount of income available to service the mortgage.
This is why tidying up unnecessary debt and unused credit facilities before applying can sometimes make a meaningful difference.
Your Deposit And Property Choice Matter
The borrower is only one side of the application. The property matters too.
A lender may look differently at an apartment, townhouse, standalone home, lifestyle property or investment property. Certain property characteristics can bring additional lending criteria into play.
Deposit size also matters.
Current Reserve Bank rules allow banks some capacity to lend above the usual high-LVR thresholds, but each lender still decides how it uses that capacity. One bank may be comfortable taking a particular low-deposit application while another may have less appetite for it at that point in time.
For existing homeowners, equity can create another set of possibilities. Someone looking to sell and buy, retain a property as a rental, or use existing equity towards another purchase may get a very different result depending on how the transaction is structured. Our home loan advice for existing homeowners and rental investors looks at the full position rather than treating each property in isolation.
A Decline From One Bank Does Not Always Mean No
This is probably the most important point.
If one bank says no, or offers significantly less than you expected, that does not automatically mean every lender will reach the same conclusion.
Sometimes the application genuinely does not work yet. In that case, the right advice may be to reduce debt, build the deposit, establish a stronger income history or simply give the situation some time.
But sometimes the borrower is fine and the lender is simply the wrong fit.
Different credit policies, servicing calculations and approaches to income can produce very different outcomes. Specialist and non-bank lenders can also become relevant in certain situations, although they come with their own criteria, costs and considerations.
The answer is not to send an application everywhere and hope something sticks. It is to understand the situation first and approach lenders whose policy makes sense for that borrower.
The Best Mortgage Is About Fit, Not Just Rate
This is something I have been talking about a lot recently.
A low advertised interest rate means very little if the lender will not approve the amount you need, does not recognise your income properly, or gives you a structure that does not suit your plans.
Oliver’s recent article, Mortgage Advice Is Much More Than Chasing The Lowest Rate, looks at exactly this issue from a wider strategy perspective.
It is also why a mortgage review, refix or refinance should look beyond the headline rate. Your lender, loan structure and borrowing strategy should all fit the position you are in now.
If Bank A offers one number and Bank B offers another, there is usually a reason.
The important part is understanding why.
Once you know how different lenders are likely to view your income, expenses, deposit, debts and property, you are in a much better position to choose the bank that actually fits your circumstances rather than assuming the first answer is the only answer available.