Mortgage advisors may now be the best way to tackle New Zealand’s extremely complex home loan scenarios.
Memo to would-be homebuyers: If you have a soft spot for expensive shoes or Uber Eats, you could be impacting your hopes for a home loan.
That’s according to Loan Market CEO Amanda Savill, who says a series of recently introduced challenges have made getting a home loan even more difficult.
One such obstacle is the introduction of the Consumer Credit and Finance Contracts Act (CCCFA), legislation that requires lenders to more intensely review applicants’ financial records.
“The aim is to encourage more responsible lending – but that means consumers need to be careful when applying [for a loan]“Says Savill.“ Lenders can be rigorous in assessing the financial condition of borrowers. Credit cards, personal loans, hire purchase agreements, and debt can all hamper your app.
“Those with a soft spot for expensive shoes or Uber Eats may have their application rejected, or the amount they can borrow reduced, because under the CCCFA, administrators and credit managers have personal responsibility for s ” ensure that legal obligations are respected; banks will no doubt take their responsibilities seriously. “
It pays, she says, for borrowers to have clean, tidy bank accounts for at least three months before applying for a mortgage: “A mortgage advisor can help you determine what will look good to a lender and also having a budget in place will make things much easier to achieve. “
This example, says Savill, is just one of the many challenges homebuyers face in a changing lending landscape.
“The Reserve Bank’s determination to tackle ‘unsustainable’ housing prices has seen several measures introduced, affecting the ability of borrowers to secure a mortgage. their heads around.
In addition to all the new financial rules and regulations, there are ongoing challenges for construction. Labor shortages, alarmingly escalating construction costs and critical shortages of materials are wreaking havoc in the new construction industry – typically a big market for first-time home buyers.
“With all of this uncertainty, builders are less inclined to offer fixed price contracts on new construction – which goes directly to banks’ lending preferences in this space,” she said.
The result? Getting a mortgage on a new property is much more difficult, with many borrowers struggling to find a lender with the flexibility they need in these uncharted waters.
Savill says recent changes have made things more confusing and difficult for home loan seekers – and the right 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 this exposes these borrowers to a bewildering array of obstacles. For example, changes to loan-to-value ratios (LVRs) and tax breaks for investors, as well as new responsible lending rules and debt-to-income (DTI) limits.
Some large banks have introduced DTI ratios, setting borrowing limits at six times the borrower’s income. DTIs have a significant impact on the amount of money a potential buyer can borrow, which the Reserve Bank sees as crucial in reducing the upward pressure on house prices.
Stricter LVRs are designed to prevent banks from lending to low deposit buyers who could be caught off guard if the real estate market changes. From November 1, only 10% of new loans will be available to low deposit homeowners (those with LVR above 80%), compared to 20%.
The LVR rules are even stricter for investors, who also face new tax rules. The ability for investors to deduct mortgage interest from taxes on existing rental properties will be phased out over the next few years.
“For borrowers, navigating this constantly changing environment is difficult and exhausting,” says Savill. “Many of our clients who have tried to go it alone have found the whole mortgage loan process confusing and overwhelming. “
From debt consolidation to mastering credit cards, mortgage counselors offer practical advice on personal finance and account management to help buyers prepare for a mortgage: “It could be a game-changer.” need, ”she said.
Options are available for high-risk borrowers, investors, and those the banks may have turned down. Mortgage advisors in the lending market can access a wide choice of lenders including those not currently using DTIs and non-bank lenders as they are not governed by RBNZ rules.
Loan Market works with a range of reputable non-bank lenders, she says, and their greater regulatory freedom provides more flexibility in offering niche lending solutions. “We are working with them to find a solution for clients who have found themselves in a bind with traditional banks.”
There is much that borrowers can do to put themselves in a position of strength, and mortgage professionals are offering their support on this front. Having all the correct income, debt and expense information makes the application process easier.
For more information: Loanmarket.co.nz