Grant's Kōrero: Access To Credit: Can Banks Do More?
Home ownership has long been regarded as a right for many New Zealanders. Today it is more elusive than ever before, and home ownership rates have continued to decline, with Stats NZ reporting that we are at our lowest rate in 60 years.
Numerous factors have led to a housing shortfall and rising house prices, and there’s been a lot of focus on these factors. Another challenge for many is the difficulty of getting a mortgage. That’s had less focus. Getting access to finance, on fair terms, can help a person “get ahead” – to grow a business, to buy a car to get to work, to buy a home. A lack of access will hold them back. The banking industry is therefore critical to everyone. Fleur Howard, the former Chief Executive of Good Shepherd, puts it this way:
“Banking should be viewed as an essential service, and with that comes an obligation on banks to ensure they are more rather than less accessible to all New Zealanders. This includes the vulnerable, and must also include the middle, who are becoming more and more vulnerable.”
This year, Ngāti Whātua Ōrākei Whai Rawa struck a deal with BNZ and Westpac to enable whānau to secure mortgages to purchase one of 24 new whare we are building on Ngāti Whātua Ōrākei land. The intention of this arrangement was to make it feasible for whānau to buy a home and access a mortgage, breaking down barriers to home ownership. Those without a sufficient deposit could opt for shared ownership, with Whai Rawa contributing up to 25% of the home's cost - they can later buy out Whai Rawa to gain full ownership of the house.
We greatly appreciated BNZ and Westpac stepping up. Other banks we approached declined to assist or couldn’t get there in the end. To make it all work, there are detailed legal arrangements “behind the scenes” which took significant resource and cost, and many months, to conclude. BNZ and Westpac persevered with us, and we got there, but the reality is that the significant effort and cost involved would have been a barrier to many.
It’s appropriate to ask whether it should have been that hard, and whether steps can be taken to reduce these difficulties.
Banks point to recent legislation as requiring them to be more careful and risk adverse in making loans. That may well be true, but there is more to it than that, with the reasons given by some banks to not assisting being that the project was “too bespoke” or did not fit their standard systems. That’s a business choice, not something driven by a law.
Sam Stubbs of Simplicity has been calling for a Commerce Commission enquiry into our banks, with his view being that their profits are unjustifably high. Others make the point that it is important that our banks are profitable and strong. Wherever you sit on this, the profits of the big four banks – last put at $10bn before tax in NZ - suggest that they could be a bit more flexible, reduce their interest charges in some cases, or to take a bit more risk on some lending.
Banks could commit a small percentage of their profits every year to helping those who don’t fulfil their usual loan criteria for a mortgage. They may need reduced interest rates. They may need a lender to take on some more risk. They may need a lender to be innovative and look at housing ownership structures which are not “standard”.
If the four big banks committed $25m each, assuming a 5% deposit and an average house price of ~$890k - that’s around 120 more whānau on the property ladder each year. All other banks could make a contribution relative to their size, adding to the impact of the initiative.
The funds could be controlled by a new organisation with a mandate to be bolder in the home loan space, and to focus on the social impact of its lending (with a nil, or reduced, profit objective). We have seen the organisations of this nature emerge in recent years, such as Community Finance (which raises and then lends funds for community housing purposes) and Money Sweetspot (providing financial reset loans to allow people to consolidate high interest debts).
“Money Sweetspot is an innovative organisation that demonstrates you can be financially sustainable, impactful, and have products that reflect reality. An organsiation of that nature in the home lending space could have a real impact.” Sasha Lockley, Co-Founder and CEO, Money Sweetspot
Housing is a tool that can generate long term wealth, while providing greater security and stability for people. There is clear evidence that children of parents who own their home are far better able to be homeowners in the future, with research showing they generally have fewer health issues and higher educational outcomes. These are outcomes worthy of support.
The initiative would not impact the strength of the banks, which is important, but would support greater societal wellbeing, enhancing the social licence to operate of this vital industry.
Banks are a key part of our community, and control access to home loans. The leadership shown by BNZ and Westpac on our project is important. The banking industry can do more, and it would be great to see them take up the challenge.
