Rationing is a term synonymous with World War II, but brokers are now using the word about mortgages.

Smaller, New Zealand-owned lenders are the go-to options for Kiwi homebuyers as the big four trading banks become increasingly picky, say mortgage brokers.

Mortgage lending is being rationed, with loans only for the best borrowers.

The rationing is invisible to the public, but homebuyers seeking a loan are having a tougher task getting one, and are more likely to get told 'no'.

SUPPLIED The last six months have seen the trading banks tighten their lending criteria, mortgage brokers say.

Six months ago, broker Karen Tatterson from Loan Market secured conditional finance from one of the big Australian banks for a couple wanting to to buy a home.

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The couple missed out at auction, but earlier this month found a home they could make their own.

SUPPLIED "The smaller Kiwi-run lenders are still very good options for those looking for their first home or a good deal," says Mark Collins, chief executive of Mike Pero Mortgages.

The conditional offer of finance the couple had had expired in late January, but the couple's income and expenditure were unchanged, so Tatterson anticipated no problems getting the offer renewed.

"Nothing had changed since I submitted that application," she says. "They wanted to borrow the same amount, on the same conditions."

Something had changed though: the bank's willingness to lend.

"It was declined on debt servicing," Tatterson said.

She picked up the phone to Kiwi-owned TSB, and secured the financing for her clients.

"I'm finding the bigger banks are less lenient than they have been, and we can get clients across the line easier with some of he smaller lenders," she says.

In another case an application that would have been routine six months ago, came back from one of the big trading banks with a request for information she'd never seen before.

"They said we need them to factor in the cost of state schooling for their children," she says. "I was just shocked."

Schools may be demanding for more money from parents, but banks had always washed up such day-to-day expenses when setting their debt-servicing ratios.

Such demands can be frustrating, she says, as the big banks are still proactively calling homeowners with decent equity in their homes and asking if they have considered buying investment properties.

When rationing bites, says mortgage adviser Campbell Hastie from the Go2Guys, it is the haves that win, and the have-nots that miss out.

"If you have limited funds to send out the door, what do you do? You ration it. It goes to the best borrowers. The people who need it least."

"What we are seeing is that the big trading banks are limiting their lending options and are moving away from lending at the edges," says Mike Pero Mortgages chief executive, Mark Collins.

"What this means is it's not taking much for borrowers to be turned away. In fact, the big banks are looking at borrowers very differently to how they did only six months ago

"On the other hand, the smaller Kiwi-run lenders are still very good options for those looking for their first home or a good deal," he says.

There's a second reason the Kiwi-owned lenders are giving brokers to love them.

"With interest rates at historic lows and swap rates increasing, the big trading banks are now seeking to claw back margin to make up for an extended period of reduced returns on assets," Collins says.

Many are expecting that to drive up lending rates in 2017, even if the Official Cash Rate doesn't move.

The pressure to ramp up rates does not seem to be telling as much on the New Zealand-owned lenders.

"While we haven't seen much movement in the official cash rate, the big trading banks have already increased floating rates in order to recapture lost margin, which will put pressure on borrower's back pockets," Collins says.

"People should be aware their mortgage repayments may rise, but the key is not to panic. Being more open to going to the smaller kiwi-run lenders is one viable option."

The floating rates of the locally-owned banks are generally lower than the big Australian banks. Kiwibank was charging 5.4 per cent, Cooperative Bank 5.55 per cent, SBS 5.54 per cent, and TSB 5.65 per cent.

That compares to ANZ charging 5.69 per cent, ASB 5.8 per cent, BNZ 5.79 per cent, and Westpac 5.65 per cent.

There are many theories behind the credit tightening, and rate rises.

Funding pressure and nervousness about complying with the Responsible Lending Code are among them.

But Tatterson believes some of the banks are cautious on new lending with house price inflation slowing.

Several years' ago, it seemed a sure bet that rapid house price rises would build equity for borrowers, but not any more.

Hastie says: "They (the banks) have got it in the back of their minds, surely. 20 per cent annual capital gains can't go on for ever."

Campbell believes though that there's another factor at play.

"The big banks are running a credit scoring system, whereas the smaller New Zealand players are running a more personal model," he says.

When the computers at a big bank say 'no', the humans working for them can't override the decision.

"When you send a deal to a TSB, you are more likely to get someone doing the assessment rather than a computer," he says.

Brokers use that human factor to get deals done for clients.