Two exciting developments have been announced that could possibly mean you now CAN afford your own home!
‘Discretionary spending’ no longer a consideration
A law change under the Credit Contracts and Consumer Finance Act (CCCFA), which means the banks will no longer take into account ‘discretionary spending’ when assessing whether you can afford a loan or not.
So all those coffees and smashed avocados on your bank statements, won’t be scrutinised. In the past the banks have asked you to prove that you can cut these non-essentials from your life for 3 months prior to applying for a loan.
Although, it makes sense from a budget perspective, it was causing significant delays before buyers were even able to apply for a loan. Home-owners realise they may have to forgo those little treats in order to pay their mortgage each week. And in reality, they would!
LVR restrictions easing
The other game-changer is the Reserve Bank has proposed to loosen loan-to-value ratio (LVR) restrictions on banks’ home lending. If you were struggling to get together your 20% deposit, this could be great news for you. The banks will be able to increase their capacity to lend over 80% LVR by 5% from 1 June 2023.
They are also proposing to ease the restrictions on investors too!
What is the LVR and why does it matter?
LVR stands for Loan-to-Value Ratio. It is the amount of a loan that a lender provides compared to the value of the property. So how much your deposit is, affects the LVR.
For example:
Borrowers with higher LVRs are considered to be more risk for the lender.
Are there any knock-on effects with these changes?
The Reserve Bank set the LVR restrictions as a way to promote financial stability and mitigate systemic risk in the banking system. But it is believed that the New Zealand housing market is stabilising, and the risks associated with high LVR lending have reduced. Great news all ‘round!
On the flip side, there are also concerns that this could fuel further house price growth, so if you have been thinking of purchasing a house, now might be the best time.
Have you had bad luck applying for a mortgage in the past?
You may have been declined because of your discretionary spending or your lack of a deposit. If so, this is great news for you. Come and talk to one of our experienced Mortgage Advisers today.
Whether it’s your first home or your dream home. Our Mortgage Advisers are experts in their field They will guide and support you to get the best mortgage for your situation.
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We have Mortgage Advisers based in Hastings, Napier, Waipukurau and Wairoa. They can assist you wherever you are in New Zealand and even the world. Get in touch today to find out more.
