Debt reduction, lender selection and realistic purchase expectations can help borrowers move closer to approval – but the starting point is understanding what is holding them back
A smaller credit card limit, a different lender or several months of preparation may change the outcome for borrowers who narrowly miss approval. The starting point is understanding what they can sustainably afford.
For Adam Clark (pictured, right), a Mortgage Adviser for Squirrel, and Elyce Peters (pictured, left), Head Adviser and Founder of The Mortgage Girls, identifying the individual constraint is central to finding a workable pathway.
Identify the real barrier
Clark does not see servicing tests as the greatest obstacle for most clients he speaks with.
“To be honest, no. The reason is that the majority of clients I talk to aren’t maxing themselves out when buying. I talk to more people who limit their lending, knowing they can cover the payments.”
For those who do fall short, income is often what is holding them back, particularly for single borrowers. But borrowing capacity and willingness to commit to repayments are different questions.
“It’s about the genuine costs of borrowing, rather than simply how much you can borrow,” says Clark.
Peters also cautions against assuming every near miss has the same cause. Smaller deposits do not automatically rule out approval, while credit history, account conduct, existing debt and affordability can all create obstacles.
“One of my favourite questions when I first meet someone is, "What is your expectation of purchase price?". Sometimes the reality of what someone can borrow doesn't meet their expectation of what they thought they could buy.
“That's where our job as mortgage advisers comes in. We need to help align those expectations, figure out what's holding them back and put a plan in place to help move them forward.”
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Make debt reduction count
Once the constraint is clear, advisers can assess which changes will have the greatest impact. Peters says reducing credit card limits, closing buy-now-pay-later accounts and paying off personal loans can improve borrowing ability.
“We've even had situations where we've paid off a student loan to increase someone's borrowing capacity because they had enough deposit available.
“It's about looking at the whole picture and working out where their money is going to have the biggest impact. Think outside of the box.”
Her approach also considers the client’s resilience while reducing debt. Depending on the amount owed, she favours building savings alongside repayments so an unexpected expense does not send the borrower straight back into borrowing.
“It's about improving the overall position rather than just trying to make the numbers work for the bank.”
Clark says some debt changes can be incorporated into an application, rather than requiring borrowers to wait before making any progress.
“So often, I talk to people who say, ‘I’m almost ready,’ but actually, they could buy tomorrow – we don’t even need to come back in six to 12 months as we can plan for the debt to be paid off or the credit card limit to be reduced.
“I have multiple applications in the queue right now where we’ve requested a condition that a personal loan be paid off and there is conditional approval based on the borrower following through.”
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Test the budget before the purchase
For Clark, preparation should make future borrowing costs tangible. Comparing current rent with prospective repayments gives clients a practical opportunity to test their cash flow, reduce discretionary spending and build savings.
“It’s not uncommon to say, ‘We aren’t quite there yet.’ It’s about trying out that budget, testing it and seeing what you can do in six to 12 months – it can add up really quickly.”
But deposit support needs to address the correct problem.
“A guarantor doesn’t allow you to borrow more – it only helps with a deposit shortfall,” adds Clark.
Peters says KiwiSaver, gifted funds and family assistance may help, alongside delaying a purchase or selling assets the client no longer needs. The assessment should establish whether more deposit, less debt or a different purchase target would make the most useful difference.
“It's about looking at everything they've got available and figuring out what is going to put them in the strongest position which could just be a different lender.”
Know when another lender can help
A decline can also reflect the fit between an application and a lender’s policy. Peters says restructuring debt or approaching another lender regularly changes the outcome.
“Different banks have different policies and different ways of assessing applications. We've definitely had situations where we've been declined by one or two banks and then the next bank has approved it because they look at something slightly differently.”
Policy knowledge and discussions with BDMs are therefore valuable before treating a decline as the end of the road.
Clark agrees that comparing lenders is a core adviser advantage.
“Occasionally, we can work across multiple banks. Bank A has one limit; Bank B might give you more. That’s the real beauty of the adviser's advantage.”
Put non-bank approval in context
The contributors take different views on the potential duration of a non-bank solution. Clark generally sees a return to mainstream lending as the objective.
“It’s pretty rare for a non-bank lender to be an appropriate long-term solution. The aim is to get back into a main bank, where pricing is better.”
Peters says suitability depends on the client, with clear explanations of potentially higher rates, additional fees and different conditions.
“For some clients it might be a stepping stone, with a plan to move back to a main bank later. For others it might be the right longer-term solution.
“The important thing is that we're not just getting an approval for the sake of getting an approval. It still has to be the right option for that client.”
Give clients a reason to return
When approval remains out of reach, both advisers emphasise leaving clients with something useful. Clark may provide a plan, ideas or a referral where more detailed budgeting support is needed.
Peters sets goals and follows up, commonly after three or six months, depending on what needs to change.
The practical task is to turn a near miss into a clear next step – identify the constraint, explain the available options and give the borrower achievable actions. That keeps the relationship moving even when the purchase needs more time.
