ANOTHER update to home loan rules - Blog - BetterSaver
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ANOTHER update to home loan rules

March 20, 2022

Just a few weeks ago, we explained the new lending regulations that meant banks would be analysing discretionary spending to assess whether or not someone could afford a mortgage. These regulations meant that everything “extra” you spent your money on - from Netflix to takeaways - would likely be scrutinised by lenders and influence how much you could borrow for a mortgage (or worse, if you were even eligible at all).

Fortunately for prospective borrowers, this is all changing. The government has announced they are reviewing the Act and will be making changes to guidance for lenders. So what’s the deal now?

Let’s look at what’s happened and what first home buyers need to do now.

What just went on?

On 1 December last year, the government introduced changes to the Credit Contracts and Consumer Finance Act (CCCFA).

The intention behind these changes was to curb predatory lending businesses; i.e. loan sharks, which offer loans with high-interest rates to people who can’t easily get them elsewhere.

By making the process for loan approval more rigorous, the hope was that it would be more difficult for lenders to approve loans to people who couldn’t afford to pay them. The new rules included a $200,000 personal fine for directors and senior managers, causing many banks to take an extremely risk-averse stance to lending.

As a result, banks took a very strict stance and started looking at applicants’ spending for the past three months on things like cafes, clothes, entertainment - even pets - and left it up to the borrower to justify their spending. This ended up feeling rather intrusive to consumers.

First home buyers were hit especially hard as potentially risky borrowers, forcing many to abandon their plans. Even some people who were pre-approved for loans were later declined following the changes.

Hearts were broken and many Kiwis complained. Loans fell from $9 billion in November to $4.6 billion in January.

So, now what’s happening?

Less than two months down the track, the government is reviewing the CCCFA and related guidance in light of these unintended consequences. On 11 March, Minister Hon Dr David Clark announced an update, stating:

“There is no question that the banks, budget advisers and Government are all on the same page when it comes to supporting the intention of the law – we want to stop vulnerable people from finding themselves with unaffordable debt.”

Changes signalled include:

  • Banks will not need to investigate previous spending habits. Borrowers will be able to provide a breakdown of their expected future expenses in support of their loan application.
  • Banks will not need to include an applicant’s contributions to savings or investments as expenses.
  • New guidelines will be released to demonstrate when a loan is considered affordable.

The new changes will likely make the process easier and less intrusive for borrowers. The next announcement about these changes is due in April.

What do I do now?

  1. Hold tight and take a hard look at your budget.

The cost of living has recently increased significantly (toilet paper is over $7 on average for the first time ever), and it looks like it’s not done going up just yet. Inflation in NZ hit a 30-year high of 5.9% already - but some experts forecast it will go to 7.4%, or even higher. Fuel prices, an already stressed global economy, and Russia’s invasion of Ukraine will continue to hit Kiwis in the pocketbook.

So whether you’re saving for a home loan or not, it’s high time to see where you can tweak your budget (or make one if you haven’t yet). And check out BetterSaver’s 22 savings hacks for 2022 to make your money stretch further.

  1. Make sure you are in the best KiwiSaver fund to meet your goals.

Which fund you should be in depends on what you want to use your KiwiSaver fund for (first home or retirement? Both?), when you plan to use it, what your acceptable level of risk is and where you sit on certain ethical issues.

BetterSaver makes it easy for you to choose a KiwiSaver fund. All you have to do is take our Fund Finder quiz where we’ll ask you about the above issues and match you to the best KiwiSaver fund for you. We’ll even switch your fund for you so you don’t have to do a thing. Except take the quiz. You should do it now.

  1. Get financial advice.

Financial advice isn’t just for those with a lot of money to manage. It’s beneficial for anyone to speak to a financial adviser to improve their money situation. It can be especially helpful when times are tight and you need to work out the best way to stay on track with your goals while forking over more cash for bills and basic expenses.

The BetterSaver team is always here to answer your questions. Send us a message to start the conversation.

Stay tuned

We will wait and see what the next announcement brings in April. With these changes and a flattening in property values, the market just might be tilting back in favour of buyers over sellers.

There’s no better time than the present to sort your KiwiSaver fund and make sure you’re on track when the time comes to get into your first home. Stay tuned as BetterSaver keeps you informed about any other changes to home loan lending. Watch this space!