Private property issue #3 - lending to get easier

Private Property – our weekly newsletter that gives you insights into what's happening in the NZ property market. Written by managing director Andrew Nicol. Sign up to receive this in your inbox every Thursday.

You could hear the sound of champagne corks popping late last week.

David Parker – Minister of Commerce – announced that it’ll become a bit easier to get a mortgage.

This came after he introduced a controversial new law in December – the CCCFA – making it harder to borrow money from the bank.

His announcement rolled back a few of the law's restrictions.

Like, banks not having to scrutinise every $27 purchase from Kmart.

Since being brought in, this new lending law has rocked the world of investors, first home buyers and other borrowers. Take a look at the graph.

The percentage of mortgage applications approved has dropped from 36% (before the change) to 30% (after the change).

That drop might sound small. But, that means – 1 in 5 people who could get a mortgage 3 months ago won’t be approved now.

And while the law is meant to protect vulnerable and higher-risk borrowers. It appears to only impact low-risk borrowers.

Take a look at this 👇

According to Centrix data, low-risk borrowers have seen their chance of getting a mortgage approved go down.

People with low credit scores? They weren’t getting approved for mortgages anyway!

But with the Minister’s announcements, change is on its way. The real question is whether these tweaks will actually make a difference to you as an investor?

Well, it’s not time to let down your hair and party (aka. borrow) like it’s October 2021. At least, not just yet.

A press release does not mean an immediate change to lending rules. The devil will be in the detail … once it is finally released.

That will come when the Council of Financial Regulators (the big wigs who make the lending rules) finish their review of this law.

I expect to see lending get substantially easier in 6 months.

But, that doesn’t mean that the game’s over, and you should give up on growing a property portfolio. There are 6 things property investors should keep in mind –

1) Don’t give up

It’s true. 1 in 5 borrowers who used to be able to get loans can’t anymore. But flip it the other way.

4 in 5 are still getting the lending.

2) There are deals to be done

If you‘re one of the 4 in 5 who can still borrow, there are deals to be done.

The market has cooled, and I am currently negotiating serious money (up to $50k) off some new build properties.

3) Love your mortgage adviser

It’s time for good mortgage advisers to shine.

Advisers who understand banks' rules and can still get their client’s applications approved are gold.

If you’d like a recommendation, Catalyst Financial (our mortgage advisers at Opes) are top-class. Otherwise, see our list of our top 10 mortgage brokers around NZ in the articles below.

4) Use the ‘commitment issues’ strategy

If the lending is looking tight, that’s when you use the Commitment Issues strategy.

This is where you decrease your on-paper expenses so you can borrow more.

That means doing things like extending your mortgage term (while keeping your repayments the same). Cancelling unused credit cards and consolidating your debts.

5) Non-bank lenders

Kiwi property investors' heads are turning. Non-bank lenders with less strict criteria are starting to fill the gap left by the banks.

6) Ask for a pay rise

If you’re struggling to get a loan for the house you want. That could give you the motivation and courage you need to have a conversation with your boss and ask for more money.

The combination of inflationary times, stricter lending rules and (importantly) being good at your job can make a compelling argument.

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