Would-be borrowers are not being declined for the fun of it.
The number of mortgages getting the green light is decreasing due to a new regulation called the CCCFA. In fact, due to the new rules introduced, application approval rates fell by 20% at the end of 2021.
Why is that?
Well, before approving your mortgage, the bank wants to ensure that you’ll be able to make the repayments even if interest rates were to rise and your repayments potentially increased.
In order to do that, they need to review the funds coming into your account and what goes out. Makes sense, right?
But, the CCCFA has made the process more complicated.
Previously, the banks would have asked for a draft budget on your monthly expenses. If interest rates increased, they would have expected you to cut your expenses to maintain your mortgage repayments.
Currently, they want to see your ACTUAL expenses.
That means they will see every coffee, every takeaway and every splurge purchase you make. They want to ensure you are already living as if interest rates were at 6-7% even though they are only 3-4% right now.
What Does The CCCFA Mean For Mortgage Applications?
While it is not impossible to get a mortgage right now, you need to ensure your application looks attractive to a lender.
The first step in doing this is talking to the team here at Oliver Broomfield Mortgage & Insurances. We will be able to take a look at your current spending in relation to what you earn and advise on whether you need to cut back a lot, a little, or not at all.
If you do need to cut back, we’d advise removing anything termed as luxury spending, like Netflix, Sky Sport, coffees, meals out or other entertainment costs.
Once you have completed 3 months of good spending habits, then we would be able to lodge any borrowing applications with major lenders.
Once you have received your funds, you are then able to return to more normal spending habits if your budget allows.
So, take the first step and chat with us about your current financial position now!
Will This Be A Long Term Thing?
The CCCFA is legislation that is in force currently. However, it has not had the impact that was intended.
Initially, the legislation was brought in to prevent high-interest providers from lending to people who couldn’t really afford to borrow.
But the impact has been more far-reaching, impacting everyday families just trying to buy a home or complete renovations.
The regulations around the CCCFA have made borrowing expectations quite unrealistic.
Many finance professionals agree that the regulations are not realistic.
So, there is currently a parliamentary petition in place (which Oliver Broomfield Mortgage & Insurances are a part of), to get the government to review and address this law.
The government have approved an enquiry in the CCCFA which will look into the intended and unintended consequences, as well as consider the impact of external factors like the global economic situation [source].
We’ll keep you posted on any updates that arise from this. And in the meantime, if you have any questions about your borrowing potential, get in touch with us today.
In Other Financial News:
Property Prices Reach Record Highs
Trade Me Property Price Index shows the national average asking price jumped by a quarter year-on-year, to reach a new high of $956,150 in December – the biggest on record [source].
While selling may seem attractive, it is important to check whether you are in a financial position to take the next step!
Make sure you seek sound advice before making any decisions.
Private Landlords Could Face More Changes
Private landlords could be faced with further restrictions on running their properties as a business.
Associate Housing Minister Poto Williams has asked her officials to look at rent controls and rental indexing as a way to help renters struggling with the cost of accommodation [source].
The best advice is to ensure that landlords are charging the market rate for rent now, as they could be impacted by potential changes in the not too distant future.
Inflation Likely To Continue
Economists are predicting that inflation will continue to rise throughout 2022.
The comments follow last week’s announcement that the Consumers Price Index (CPI) increased 5.9% in the year to December.
This was aided by a 1.4% rise in the December quarter and is the highest annual rate since 1990 [source].
Inflation impacts the cost of everything, so it’s vital to get a handle on your current financial position so that you are able to make informed decisions going forward.
If you have questions about any of the ideas raised here or just want financial advice you can trust, get in touch with Oliver Broomfield Mortgage & Insurances today.