Kiwi Mortgages


First Home Buyer Loan after Banks Tightening Lending Rules


There has been a lot of talk in the market and media about the banks tightening their lending and indeed this is hurting the first home buyers the most.

As a home loan finance company, we have seen a significant change in the way the banks are currently assessing the loan applications and definitely, the banks now are asking whole lot more questions and scrutinising the borrower personal and financial situation at the time of application as well as after the purchase of the property.

In some cases, we have seen the borrowers are not able to achieve the level of loan approval that they hoped for. We understand that this can be disappointing. From the bank’s point of view, as responsible lenders, what they are trying to ascertain is that you have sufficient surplus cash flow and savings from your income after expenses, to ensure that you do not have problems with home loan repayments and other property outgoings after property purchase.

Check this- How Government help to Buying Your First Home

But the banks are still lending – this is what they do.

Now, let’s see from a first home buyer’s perspective as to what you can do to improve the chances of securing an approval as per your requirements. Consider the below:

  • The first and foremost is to set your own expectations at a realistic level. The interest rates are going up, the general inflation has been going up. There is still a lot of uncertainty around the pandemic with all its variants. No doom saying here but caution is required. It is not a good idea to borrow to the last dollar of your cash flow – you must have comfortable cash flow sufficient enough to sustain the future interest rates increases or any other future foreseeable events putting added pressure on your cash flow, such as a change in lifestyle, addition independents etc.
  • Keep a close eye on your account conduct, which means: Operate all your accounts within approved arrangements – No un-arranged overdrafts in your accounts No missed payments or dishonours – the trick is to maintain sufficient balance in the accounts beforehand and keep topping them up as required. Align automatic payments to your pay cycle.

Check this- How to choose the right Interest Rate for your Home Loan?

  • Prove your savings capacity & inclination by conduct. Save out of your income each pay cycle if possible. Typically, your outgoings will be higher after property purchase than what you may have now. Provide evidence in your accounts that you have been saving enough to withstand additional outgoings after purchase.
  • Reduce your debt level to a minimum – your existing debts affect your loan application and its outcome.
  • Avoid having too many credit cards as the banks treat a percentage of your card’s limit as expenses in their assessment, even if you are not using them. This affects your loan application.
  • Avoid having too many credit facilities, such as credit lines, credit cards, buy now pay later schemes, etc. the fewer existing debt or credit facilities, the better.
  • Avoid having too many inquiries on your credit file, such as going for hire purchase, etc for small purchases. The banks require a good credit score for considering your application.

Check this- Restructure Tool to Optimise Savings and Repay Your Loan Faster

  • We cannot increase our income overnight, but our personal expenses can be flexible. What the banks are looking for is surplus cash flow from your income. If you have been planning to reduce some avoidable expenses after the property purchase, you might consider doing it now, so the lender could see this at the time of application. Any such adjustment in expenses will create extra cash flow, which might help in your loan application.
  • Maintain your savings in your personal savings account – If part of your deposit is coming from surplus funds in your business account transfer the funds to your personal savings account and try not to withdraw from your savings account too many times. Ideally, your savings account should be a one-way lane with only deposits and should have minimum withdrawals, if at all.

Any approval from a lender remains subject to their lending criteria and appetite but the above will go a long way in assisting your loan application.