For aspiring homeowners, the path to home ownership is often a challenging one. Soaring property prices and stringent lending criteria have placed home ownership in New Zealand out of the reach of many. But the lending landscape in New Zealand is undergoing significant change, bringing fresh possibilities and new opportunities for those looking to take their first steps onto the property ladder. Here’s an outline of what the changes to LVR and CCCFA could mean for first home buyers and existing borrowers.

Loan to Value Ratio (LVR) Restrictions

First introduced in 2013 by the Reserve Bank of New Zealand, Loan to Value Ratio (LVR) restrictions “promote financial stability by limiting high-risk mortgage lending”. Designed to slow down rapid growth in house prices, LVR is used to control the flow of new lending by limiting the amount that banks can lend against a mortgaged property.

From 1 June 2023, the LVR will be eased to reflect the fact that the current lending activity presents fewer risks to the financial system and household resilience. The new setting will see:

• A 15% limit for loans with LVR above 80% for owner occupiers.
• A 5% limit for loans with LVR above 65% for investors.

The easing of LVRs is good news for first home buyers as it means that banks can lend to more first home buyers with smaller deposits which would open up additional lending.

Credit Contracts and Consumer Finance Act 2003 (CCCFA)

From December 2021 when first implemented, the CCCFA required lenders to follow more stringent processes to ensure that lending was deemed responsible. The regulations effectively put the brakes on the hot property market at the time, but also had several unintended consequences.

Borrowers that should have passed affordability tests were being declined completely or approved for smaller amounts, while being subjected to inquiries that could be perceived as intrusive.

The Government has since done a U-turn on many of the requirements under the CCCFA, pulling back some of the regulations in July 2022 and making incremental changes since then. The final CCCFA regulation changes came into effect in May 2023 and include:

• A narrowing of the expenses considered by lenders to exclude discretionary expenses.
• Providing more flexibility for lenders about how repayments are calculated.
• Extending exceptions from full income and expense assessments for refinancing of existing credit contracts.

The changes aim to increase ease of access to credit and reduce unnecessary inquiries, while still maintaining a strong level of consumer protection.

For first home buyers and existing homeowners, the changes to CCCFA signal good news as the approach to assessing expenses will be more pragmatic going forward, which should simplify processes and speed up applications.

Official Cash Rate (OCR)

The official cash rate (OCR) is set by the Reserve Bank’s Monetary Policy Committee to influence interest rates and keep inflation low. Meeting 7 times a year, the committee reviews and decides on changes to the OCR.

Following an extended period of high inflation, the RBNZ raised the OCR in several increments to its highest level since December 2008. Now at 5.5 per cent, the RBNZ recently signalled it had likely reached the end of its tightening cycle, as inflation is easing from its peak and consumer spending growth is slowing.

This could mean that mortgage interest rates are nearing their peak, if they haven’t already done so, welcome news for homeowners facing interest rate hikes and for new borrowers struggling to meet affordability criteria.

Whether you’re a first home buyer, an existing homeowner, or a property investor, presenting a solid mortgage application is an important part of success. Contact a Mortgage Express branded mortgage adviser to get mortgage advice for buying a first home, a new home, or an investment property.