This week the Reserve Bank has lifted the Official Cash Rate(OCR)to 0.50 per cent. This was expected, and as they were poised to do back in August before the Level 4 lockdown was announced.
Madison Reidy from Newshub called up and wanted an interviewon the impact of the change for first home buyers so it was outsidefor a conversation despite no haircut for 7 weeks!
In our last newsletter, we touched on the changes that were coming, and already the impact is being felt. What the changes will impact is the need for lenders to evidence a borrower’s ability to repay a loan. Banks will need to be able to provide a clear evidentiary trail of customer affordability, and that’s where we can help.
What does that mean in practice? Mortgage approvals will require a new level of analysis, but banks’ lending criteria will remain the same.When doing their due diligence, banks will place a greater emphasis on affordability, actually looking at your spending habits such as eating out as well as traditional expenses such as rates, water bills, power bills, and transport costs.
It’s not just about how much you earn, it’s about how much you have leftover. Spending hundreds of dollars a month on takeaways and coffees? Spotted. Afterpay repayments? Noted. Banks are looking at what your money is being spent on.
Your current and expected future living costs will come under the spotlight.
So what can you do to improve your chances?
There are practical steps-low deposit borrowers can take to minimise the effect of the new restrictions on your application:
1: If you can get to a 20% deposit with help from the Bank of Mum and Dad, consider this as an option. Low deposit restrictions will no longer be a hurdle for you.
2: Consider buying a cheaper home or an apartment. If you were looking at $900,000 homes, then look at what you can get for $800,000.
3: Are there new-build properties in your price bracket? Newly-constructed homes are exempt from the low deposit restrictions so this may be an option to look at.
4: Ensure you and your partner are depositing salary at different banks. Banks will prioritise their own customers so having accounts with two different banks will mean you now have two options to approach.
5: Banks also prioritise active transaction – i.e. offers that have been accepted by the vendor. Ask your broker to estimate your approved amount and try to get an offer accepted on a property, subject to finance of course. Try to avoid auctions (tricky in Auckland, I know). Deadline sales and sales by tender are a good option, if possible.
6: Consider non-bank lenders for a year or two. This option is more expensive but may mean you are able to get into your own home sooner.
7. Lastly, bear in mind that the amount of money the banks can lend to low-deposit borrowers fluctuates based on volumes. If you are a good applicant but have been declined because there is no money to lend, keep in touch with your broker to see if the situation changes.
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As always, if you'd like to discuss anything or you feel that we may be able to assist a family member, friend or colleague via an initial no-obligation call, please don't hesitate to get in touch.We look forward to helping you now and into the future.
