Top tips for mortgage borrowers amid tougher lending restrictions

Bank and mortgage experts share their top tips for prospective home buyers.
Bank and mortgage experts share their top tips for prospective home buyers. Photo credit: GettyImages.

Changes to the Credit Contracts and Consumer Finance Act (CCCFA) mean bank statements are going under the microscope, mortgage experts say.    

From December 1, lenders are required to actively review information provided in more detail, to ensure they understand a borrower's circumstances before approving a loan. Lenders will need to ask more questions, Banking Ombudsman Nicola Sladden said, advising borrowers to "allow time", "be prepared" and "be clear".

For new borrowers wanting to put their best foot forward, Newshub asked a group of mortgage advisers, along with ANZ and Kiwibank, to share their top tips.

David Windler, co-founder of The Mortgage Supply Company, told Newshub most banks are already operating under the new CCCFA guidelines. As the level of evidence required around affordability will increase, this makes the loan application process more complex and time consuming. 

"Start that process sooner rather than later so [you're] not trying to rush an application under time pressures," Windler suggests.

Campbell Hastie of Hastie Mortgages says the changes mean bank statements are put "under the microscope".  

"Banks are looking at all of your expenditure, whether it's essential or discretionary," Hastie says.

Non-essential spending (e.g. fast food, laybuy, buy now, pay later, regular voluntary donations, gambling) is assessed on whether behavior is habitual, meaning it's unlikely to change.

Those serious about increasing their borrowing power could look at their spending habits to see where they could cut back, ideally several months ahead of putting an application in.

"If you can't demonstrate that behavior is going to stop or change, it will be included and it will impact on your ability to service a given amount of debt," Hastie says.

Wayne Henry, managing director of Wayne Henry Mortgages, says banks are using actual expenses from statements, rather than expenses submitted as part of the application. 

That means borrowers need to show they can service a mortgage at the level required. 

"As advisers, we have to go through statements is tough and it's going to get tougher," Henry says.

Borrowers should avoid any unnecessary costs and ensure they have a good account record, proving they aren't living payday to payday, Henry adds.  

An ANZ spokesperson said as CCCFA changes impose stricter obligations on lenders, its customers may find the application process takes longer and is more involved. This includes those borrowing smaller amounts, and top-ups to existing loans.

"Lenders may ask for documents showing a customer’s recent transaction history over at least 90 days, as well as other information that allows them to identify and verify a customer’s debts and expenses," the ANZ spokesperson said.

Customers could speed up the application process by having 90 days' of bank statements (for accounts they pay expenses from) ready, and evidence of their income (e.g. payslips or an employment contract if income isn't paid into the account).

"Customers should also have a think about what their expenses are now and how they could change after they take out the lending."

"While we may not get down to individual expenses, like how much they spend on coffee each day or their take-out habits, we will need to check how much they spend in a range of categories, like paying off debts, and living expenses, like food, utilities, travel, etc," the ANZ spokesperson added.

Kiwibank head of borrowing and savings Chris Greig said the changes don't necessarily require people to change their household budget, income and expenses. 

But banks are required to actively review information provided on loan applications. That's to ensure lending is affordable and that repayments can be met over the longer term.

"Prospective home buyers should have a realistic budget, which takes into account regular commitments and discretionary expenditures and display good saving habits," Greig said.

New borrowers should be prepared to provide supporting documents, like proof of income, expenses and identification.

"After receiving pre-approval (also called a conditional approval), your home loan specialist can talk you through the steps involved in making an offer, like getting the bank’s approval on a particular property," Greig added.

For those new to the home buying journey, Kiwibank shares the following four tips:

  1. Ask family and friends about their home buying experience, or seek out other people’s experiences online on blogs or Facebook groups.

  2. Use borrowing and repayment calculators to get an idea of affordability.

  3. Monitor savings and spending to make sure you're on track.

  4. Set some money aside for home buying costs like building inspections and lawyers' fees.

In addition to keeping a lid on casual spending, mortgage advisers also suggest new borrowers get rid of any credit facilities that aren't used, and to consider how their future plans (e.g. income or family changes) might affect their ability to make repayments.