Changes are coming to mortgage top-ups

If you currently have a mortgage and are hoping to get a quick top-up for your next family holiday or a new car, then you might be out of luck come December.

Starting 1st of December, new credit rules are coming into play which will make topping up your mortgage harder. These rules could also affect new lending for things such as a home loan + a top up for renovations. 

The changes are being made to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) which mean that there will now be new minimum standards for assessment of affordability and the suitability of the loan and the borrowers ability to repay said loan.

This means borrowing will move from a more generic formula assessment, to individual assessments where borrowers will be assessed more in depth. Potential borrowers will be analysed on how much they are spending and on what, and overall spending habits will be looked at, rather than just fixed expenses. This will be a shock to many potential borrowers, and will mean that many borrowers will need to look at their spending, and reduce extra spending before they apply for their mortgage. Eating out, takeaway coffee, clothes shopping and holidays will all be taken into consideration, even if they don’t happen all of the time.  Things like debt consolidation will need to take place before pre-approvals go into place, and spending mechanisms like Afterpay and credit cards will be analysed heavily by the banks. 

Instead of being easily able to throw a few extra grand on the mortgage, like days gone by, lenders will now require more documentation around why a borrower wants a top up to their loan. Borrowers who are wanting top ups for home renovations, will be required to provide quotes to prove the amount they are wanting to borrow is the correct amount, and they aren’t trying to get an extra few thousand for miscellaneous spending.

Additional mortgage criteria, such as the time taken to pay off the loan could be added too. For example if $10,000 is borrowed for renovations, it might be required to be paid back within 5 years instead of the loan term of 25 years. 

While this all might sound a lot, the measures are being put in place to ensure borrowers don’t have access to unsuitable credit or bite off more than they can chew in regards to paying it back. If you are unsure how these new changes might affect you, or you need help navigating through the new changes and criteria, then give us a call.