# Five banks & five mortgage borrowing calculators, so how much would each lend interest.co.nz's fictional borrowers? Between \$320,000 and \$866,000, apparently

By Gareth Vaughan

For most people who are striving to buy a home one of the first questions they need answered is how much they can borrow.

To help these wannabe borrowers/buyers banks have home loan borrowing calculators on their websites. But are these a useful tool for borrowers or just a marketing tool for the banks?

I conducted a little experiment with the home loan borrowing calculators of ANZ, ASB, BNZ, Kiwibank and Westpac this week. The first thing that struck me was how different they are in terms of the detail of information they ask for.

I plugged in basic information to see how much each bank would be prepared to lend. My fictional borrowers were a couple with no dependents with a combined annual income of \$140,000 before tax, monthly expenses of \$3,600 and a credit card limit, where asked, of \$10,000. Where asked, I said the couple had an \$80,000 deposit. According to ASB's calculator, the fictional couple has income of \$8,930 a month after tax.

ANZ's minimalist calculator asks only if it's an individual or joint application, what the annual household income before tax is, how many dependent children there are, and how many vehicles you have.

"We estimate you could borrow up to \$866,000 based on the information you provided. Your repayments would be about \$5,076 per month over a 30 year loan term (including principal and interest), with the same interest rate of 5.79% p.a. over the 30 year term and a 20% deposit of \$217,000," ANZ said.

That means the couple would be paying the equivalent of 57% of their monthly income in mortgage payments. However, the ANZ calculation assumes they can access a \$217,000 deposit. ANZ's calculator didn't ask for deposit details.

ASB's calculator, which seeks significantly more detail but asks nothing about a deposit, said; "You may be able to borrow up to \$682,000 [with] monthly repayments [on a 30 year loan] based on our current housing variable (floating) interest rate of 5.80% p.a."

That's \$4,002, or 45%, of monthly income going on mortgage payments. The ASB calculation includes 3% KiwiSaver contributions.

BNZ's detailed calculator also gives a detailed response. Over 20 years \$597,268 with fortnightly repayments of \$1,737 could be borrowed, over 25 years \$647,917 with fortnightly repayments of \$1,655, and \$682,058 over 30 years with \$1,588 fortnightly repayments. The repayment interest rate used is 4.49%, being the bank's two-year classic home loan rate. This is more useful than the floating rates used in the calculations by some of the other banks, given the vast majority of New Zealand borrowers fix their mortgage rates with two years the most popular term.

Kiwibank's calculator says my fictional couple could borrow up to \$320,000. Given the \$80,000 deposit, this means the couple could afford a home worth \$400,000.

Westpac's calculator also estimates the couple could afford a property worth up to \$400,000, giving them repayments of \$1,619 per month. This number crunching also included the \$80,000 deposit.

'Originally developed as a marketing tool'

I asked the five banks some questions about their home loan borrowing calculators including what they view the purpose of the calculator as, do they view it as responsible, and if it's wrong or inaccurate, what's the point of the calculator?

Here's what an ANZ spokeswoman said;

"ANZ’s online home lending calculators are designed to provide high level estimates for customers based on them entering some simple variables. Its aim is to give customers a general idea of what they could possibly afford. Our formal assessments of how much a customer can afford and service takes into consideration a greater level of detail. We regularly review our online calculators to ensure they remain useful tools for our customers."

A Kiwibank spokeswoman said;

"Kiwibank’s mortgage calculator is a popular online tool with customers. It was originally developed as a marketing tool but has become a useful starting point for anyone beginning the journey of home-ownership. In line with our commitment to responsible lending Kiwibank has always been relatively conservative in its estimations, and our calculator is built on the premise of a 20% deposit. If a customer has a full assessment we would possibly be able to lend more and could be flexible in regards to the deposit amount. We always welcome feedback in regards to what is useful for customers."

A Westpac spokesman said;

"Our calculator provides customers with a general idea of how much they might be able to borrow. We believe it’s a useful tool for customers starting out on their home ownership journey. As noted on the webpage, the calculator is intended as a guide only and calculated figures are based on the accuracy of the information entered."

An ASB spokeswoman said;

"ASB makes available three home loan calculators on its website. Our mortgage repayment calculator provides an estimate of likely repayments on a home loan of an amount, term and interest rate specified by the user. Our home loan borrowing calculator provides the user an estimate of the amount they could afford to borrow based on income, expenses and repayment term specified by the user. Finally, our property investor calculator provides an estimate of the costs and returns from residential property investment based on amounts, terms and rental returns specified by the user."

"In respect of both the mortgage repayment and borrowing calculators, they are designed to estimate the repayments and affordability of lending based on inputs provided by the user. Minimum deposit requirements vary according to the type of property, whether owner occupied or otherwise, and other market factors. As such, given their indicative nature, the calculators provide ways in which customers can contact us to discuss their individual requirements."

BNZ is yet to respond to requests for comment.

John Bolton of mortgage broker Squirrel Mortgages has experienced some frustrations with banks' mortgage calculators. Bolton said these calculators are only useful when they are kept up-to-date.

"Whereas credit policy is constantly changing, calculators tend to be marketing projects and quickly forgotten about. The challenge is when a client can only borrow \$650,000 and they retort the bank calculator told them \$900,000. Of course it can also go the other way. It’s always going to be a fine balancing act and nothing beats good financial advice," said Bolton.

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ANZ's calculator is both misrepresentation and indicative of reckless lending. Seems they have learnt nothing from the Aussie Royal commission enquiry.

@peri: true.. I had the same experience..ANZ happy to lend more when I applied for pre-approval. One of my mate was able to get mortgage via ANZ after being turned down by BNZand ASB.. I had the feeling ANZ must be the least leveraged bank in NZ

And it would appear that nothing was learnt from the experience of the Northern Hemisphere banks who having leant out 5-7 times multiples of income before the 'Credit crunch' quickly had their wings clipped when the wholesale market liquidity dried up. 6 times household income has never been sustainable... Not it borrowers actually have an ambition to repay the debt. Hey ho, here we go again.

And it would appear that nothing was learnt from the experience of the Northern Hemisphere banks who having leant out 5-7 times multiples of income before the 'Credit crunch' quickly had their wings clipped when the wholesale market liquidity dried up. 6 times household income has never been sustainable... Not it borrowers actually have an ambition to repay the debt. Hey ho, here we go again.

Interesting, what's the solution?

restructure banking

...and don't forget to READ the actual loan documentation before you sign it! Yes, all 32 pages of it (or whatever it is), because relying on the 2 page "Letter of Advice" that is supposed to summerise the full contract will be as much value to you as using these Loan Calculators if you ever need to challenge anything ( and believe me, there will be lots of challenging going on as, or if, the market deteriorates)
Do not assume that Banks are Good Guys who have your best interest at heart and would never misrepresent anything to you, you being a customer that is their bread and butter and all.... because they aren't..

Yep. Summary... their arse is covered at the expense of yours.

Like that "discount" customer margin I got off the floating rate.

* We can change the agreed annual interest rate by changing the customer margin. We can do this by:
...
* changing the base interest rate margin.
...
We do not need your agreement to make any change in this clause.

Another bank seemed even worse, wanting me to hire a \$\$ valuer three times during the construction loan.

Massive lending margins, Floating rate of 5.8 vs 90 bill of 1.9. Why is that? It used to be that the floating interest rate sat about 1.5 to 2 percent above the 90 bill rate but the margin is now nearly 4 percent.

Are they trying to maintain the same dollar return on a dollar lent? Interest rates halve, double the spread.

If you can save alongside repaying your mortgage, then you should consider the benefit of floating some or all of your mortgage and using an offset facility to offset the interest on that floating portion. The more you save, the better your net interest rate will be. Save enough per fortnight and you will beat any bank's fixed interest offering.

The linked article (https://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&obj...) quotes John Bolton as saying that 5 times income is optimistic. So 5*\$140k = \$700k at best. Maybe it would have been a better exercise to compare the banks' calculators with data or opinions from mortgage brokers.

To be honest those estimates are more conservative than I expected. I remember back in the day (circa 2011) punching my details in and getting figures up to \$1m. It was crazy.

Taking a simpler approach, this https://www.moneyhub.co.nz/how-much-can-i-borrow-mortgage.html just looks at how much money you can allocate to a mortgage, and works background on the interest rate and term. Not subjective like a bank, and spits out data that quantifies exactly what you can afford, although wage inflation isn't a consideration.