Do you have mortgage plans? Know the new credit rules

Working towards homeownership? Or perhaps, you’re looking to use your mortgage towards a reno, or another financial goal?

New consumer credit rules are coming into effect on 1 December 2021, which may or may not affect your plans to top-up your mortgage, or to get a new one. Read on for a handy guide on some key things to know.

Case-by-case assessment of applications

As you might know, lenders assess each new loan application by looking at borrowers’ income and spending. With the new credit rules, this doesn’t change – but the list of enquiries that lenders and financial advisers need to ask becomes more ‘prescriptive’.

In other words, lenders can no longer rely solely on the information provided by the borrower and have to show that they’ve made reasonable inquiries about the affordability and suitability of a loan. 

Impact on new borrowing

Are you an aspiring first-home buyer, or know someone who is? As we said, the new credit rules require lenders to use a more prescriptive set of criteria to assess new loan applications. And this, of course, applies to new mortgage applications as well.

With a much more ‘granular’ focus on borrowers’ financial circumstances, it could take longer for some buyers to get an approval or they may need to provide more information. So, if you’re looking at purchasing your first home, it’s important to factor in this potential processing time as well. 

Like to know more? As mortgage advisers, we can help you understand your borrowing power and assess your situation before proceeding with a formal mortgage pre-approval. 

What about mortgage top-ups?

Own a home and are thinking of using the equity in it to fund a renovation, a new car, or even your next holiday? Being new borrowing, the credit rules apply to mortgage top-ups as well. 

Here in New Zealand, it’s not uncommon for homeowners to borrow against their home, to fund the purchase of big-ticket items. Rising house prices have made this possible faster for many, in recent years. The advantage of this option is that mortgage top-ups have much lower interest rates than personal loans. But they also come with a key risk: if the extra debt is not repaid within a few years, but rather over the entire duration of the mortgage, the overall interest cost paid on it can be huge – much bigger than what would have been paid with a personal loan.

The solution to this is to focus on repaying this extra portion of debt faster, and that’s what the new lender may prescribe, under the new rules. 

Like to learn more?

Get in touch – as mortgage advisers, we can help you understand if and how these changes may affect your plans, and help find the appropriate path forward.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your