Cooking the Books: What you need to know about likely mortgage rule changes

Each week BusinessDesk and the NZ Herald’s Cooking the Books podcast tackles a different money problem. Today, it’s how mortgage rule changes will impact everyone from first-home buyers to investors. Hosted by Frances Cook. 

First-home buyers are being reassured that if mortgage rules change, it’s unlikely to lock them out of the market.

In fact, it could end up helping them.

The Reserve Bank is considering a change from LVR (loan-to-value ratio) rules, which centre mortgage approvals on the value of the house, to debt-to-income (DTI) rules, which focus on the income of the buyer.

The proposed change would come in around the middle of this year and would mean home buyers get approved for debt capped at six times their income. Investors would be capped at seven times their income.

Speaking on the Cooking the Books podcast, CoreLogic chief property economist Kelvin Davidson said the limits were likely to have a bigger impact if interest rates fell.

But even once that happened, there were ways for lower-income first-home buyers to work around it.

Banks could give up to 20% of their mortgage lending to people outside of those limits, and historically, had used that allowance for first-home buyers.

“Then there’s things like new builds, they’ll be exempt from the DTI rules. So theoretically, you can get into a new build with slightly relaxed rules.

“It won’t be a free-for-all; your serviceability will still be tested, you’ll still have to be able to afford the mortgage on that new build. But the rules may be a little bit easier.

“So there are still ways in for first-home buyers.

“Then there are all your standard hacks, in terms of trying to increase your income, getting a boarder in, all those sorts of things.”

Davidson said investors historically used higher levels of debt, so the new DTI system was likely to have a bigger effect on them.

For the full interview, listen to the Cooking the Books podcast here.

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Listen to the full interview on the Cooking the Books podcast. You can subscribe on iHeartRadio, Apple Podcasts, or Spotify.