Bank acted correctly in assessing lending application and placing funds in joint account

Categories:

Advice & information, Insurance, Bank decisions, Lending,

Summary:

In October 2020, Sharon and John bought a property in Wānaka using a loan from the bank. In August 2021, Sharon asked the bank for a loan so she could buy another property in her own name. The bank said it could not approve her application because of her joint loan on the Wānaka property. The bank suggested other options, including adding John to the application. Sharon and John then bought a property in Auckland with a loan from the bank.

In January 2023, the Auckland property was severely damaged by flooding, and in July 2023, Sharon advised the bank that she and John were in a dispute about their properties. In 2024, the bank received money from Sharon and John’s insurance claim and put it in a joint savings account. Between April 2024 and March 2025, the loan account fell into arrears. The bank reported Sharon’s account in arrears to credit agencies. In December 2024, the Wānaka property was sold, and in March 2025, Sharon reached a settlement with John and the insurance money was used to fully repay the loan and discharge the mortgage.

Published:

August 2026

Sharon complained the bank had lent irresponsibly. She said the lending did not meet her objective of owning the property herself, and the bank had not clearly explained the joint structure. She said the bank should have declined the application or at least required a property-sharing agreement between the borrowers. Sharon also complained the bank should have applied the insurance funds to the loan rather than holding them in the joint savings account. She said the bank should not have reported arrears to credit reporting agencies while it held those funds.

Our investigation

Our examination of the bank’s lending records, approval documents and emails showed the bank had explained why sole lending was not an option for Sharon. It was reasonable for the bank to have suggested involving John because she already had a joint loan with him. The bank made clear that the approved lending was joint. The records also showed the bank assessed serviceability in detail, including existing debt, income and credit card limits. We found the bank made reasonable inquiries about whether the lending would meet Sharon’s objectives and whether she could repay it without substantial hardship. We also found the bank gave Sharon enough information to make an informed decision. The bank did not have to require a separate property-sharing agreement between the borrowers.

As for how the bank handled the insurance money after learning Sharon and John were in a dispute, the bank promptly told Sharon it would hold the money in a joint savings account until it received joint instructions. In the circumstances, that was a neutral step to protect the funds. The bank did not have to decide which borrower was entitled to the money or to apply it to the loan without agreement from both borrowers. Once the dispute was settled, the bank acted on the joint instructions to repay the lending and discharge the mortgage.

In examining the arrears reporting, we found the loan repayments were overdue, so the bank’s monthly arrears reporting was accurate. It did not have to add commentary explaining why payments were missed.