First-home buyers are stepping back from the market as it becomes harder to get a mortgage. As well as rising mortgage rates, there are looming changes happening to the Credit Contracts and Consumer Finance Act (CCCFA). The new rules will make it harder to get a loan and has altered the current lending environment.
The new CCCFA regulations, which come into force on December 1st, are to protect borrowers better. Mortgage advisers expect the new rules to significantly affect the time and processes involved with any type of mortgage lending.
Loan Market mortgage adviser, Bruce Patten, says that the amount of information now needed for mortgage lending will surprise most borrowers. Lenders will need to apply more scrutiny than there has ever been to borrower affordability. The new rules mean borrowers will have to show more evidence with their spending and earnings when applying for loans.
Previously, expenses such as Netflix subscriptions or personal trainer fees were considered discretionary spending - this is no longer the case. Lenders want to know what people’s outgoings are in detail, and banks will now consider these subscription services as expenses.
People will need to know their actual costs of living and what they can afford. They will need to show three months of bank statements and a budget, and they will be analysed as part of lenders’ calculations.
On Friday, The Bank of New Zealand (RBNZ) stopped lending to owner-occupiers who did not have at least a 20 per cent deposit unless they were buying or building a newly-built property. RBNZ brought in the restrictions to reduce the rising house price inflation, with the governor of the Reserve Bank of New Zealand, Adrian Orr, calling prices unsustainable.
ANZ became the latest bank to push pause on low deposit loans on Tuesday after BNZ and Kiwibank did the same last week. ANZ said the change harmed a small number of ANZ customers, around 10 per cent of home loan applications.
Ben Kelleher, ANZ’s managing director for personal banking, says, “the bank was unable to accept new home-loan applications to buy existing homes where the loan-to-value ratio (LVR) was greater than 80 per cent.” and “we want to assure customers this pause is a temporary measure and is necessary to help us meet the new LVR rules,”
For those who have been planning or are in the process of applying, ANZ is encouraging Kiwis to talk to banks about other options. They remain committed to helping our customers achieve their homeownership goals.
How does this affect KiwiSaver Investors?
For KiwiSaver Investors, this will mean you now need a more extensive first home deposit and, therefore, more time investing. Investors will have to leave their balances in the chosen funds for longer to earn more returns to increase their balance. Due to the longer investment horizon, investors who were close to their 10% deposit goal may have to re-evaluate their KiwiSaver funds. Investors who intend to withdraw for a low deposit on a home will no longer have their KiwiSaver in a cash fund and will be able to move their balance into a fund that could result in a greater return to achieve the 20% deposit goal.