The best way to get a home loan
Mortgage advisers may now be the best way to tackle NZ's hugely complex home loan scenarios.
Memo to prospective home buyers: if you have a weakness for expensive shoes or Uber Eats, you could be impacting your hopes of gaining a home loan.
That's according to Loan Market CEO Amanda Savill, who says an array of recently introduced challenges has made securing a home loan even more difficult.
One of those hurdles is the introduction of the Credit Contracts and Consumer Finance Act (CCCFA), legislation which places a duty on lenders to scrutinise applicants' financial histories more intensely.
"The aim is to encourage more responsible lending – but it means consumers need to be careful when applying [for a loan]," says Savill. "Lenders can be rigorous in assessing borrowers' financial positions. Credit cards, personal loans, hire purchase agreements, and debts can all harm your application.
"Those with a weakness for expensive shoes or Uber Eats may find their applications rejected, or the amount they can borrow reduced, because, under the CCCFA, directors and credit managers have personal liability for ensuring legal obligations are met; banks will no doubt take their responsibilities seriously."
It pays, she says, for borrowers to have clean and clear bank accounts for at least three months prior to applying for a mortgage: "A mortgage adviser can help you determine what's going to look good to a lender and by also having a budget in place this will make things a lot easier to achieve."
That example, says Savill, is just one of the many challenges facing home buyers in a changed lending landscape.
"The Reserve Bank's determination to tackle 'unsustainable' house prices has seen several measures introduced, impacting borrowers' ability to get a mortgage. Even those who previously had no problem getting approved have been caught out – and there's an awful lot for borrowers to get their heads around."
As well as all the new financial rules and regulations, there are ongoing challenges for construction. Labour shortages, an alarming escalation in building costs, and critical materials shortages are causing havoc in the new build sector – usually a big market for first home buyers.
"With all that uncertainty, builders are less inclined to offer fixed price contracts on new builds – which runs head-on into banks' lending preferences in this space," she says.
The result? Getting a mortgage on a new build property is much trickier, with many borrowers struggling to find a lender with the flexibility needed for these unchartered waters.
Savill says recent changes have made things more confusing and difficult for home loan seekers – and good advice is more important than ever. The key is for borrowers to make sure "they have their ducks in a row" before approaching a lender.
But even that exposes those borrowers to a bewildering array of hurdles. For example, the changes to loan-to-value ratios (LVRs) and investor tax concessions, as well as new responsible lending rules and debt-to-income limits (DTIs).
Some major banks have introduced DTI ratios, setting borrowing limits at six times the borrower's income. DTIs significantly impact the amount of money an aspiring buyer can borrow, which the Reserve Bank sees as crucial to decreasing upward pressure on house prices.
Tighter LVRs are designed to limit banks from lending to low-deposit buyers who could be caught out, should the property market turn. From November 1, only 10 per cent of new lending can go to low-deposit owner-occupiers (those with an LVR above 80 per cent) – down from 20 per cent.
LVR rules are even tighter for investors, who also face new tax rules. The ability of investors to deduct mortgage interest from taxes on existing rental properties is being phased out over the next few years.
"For borrowers, navigating a way around this constantly changing environment is challenging and exhausting," says Savill. "Many of our clients who have tried to go it alone have found the whole home loan process confusing and disheartening."
From debt consolidation to getting credit cards under control, mortgage advisers offer practical advice on personal finance and account conduct to help buyers become mortgage ready: "It could be the game-changer you need," she says.
Options are available to high-risk borrowers, investors and those the banks may have turned down. Loan Market mortgage advisers can access a wide choice of lenders, including those that don't currently use DTIs and non-bank lenders as they are not governed by the RBNZ's rules.
Loan Market works with a range of well-regarded non-bank lenders, she says, and their greater regulatory freedom provides more flexibility in offering niche lending solutions. "We work with them to find a solution for customers who have hit a dead end with traditional banks."
There's a lot borrowers can do to put themselves in a strong position, and mortgage advisers offer support on that front. Having all the correct information about income, debts, and expenses makes for a smoother application process.