In recent years, Kiwi borrowers have faced significant challenges due to higher interest rates and changes to borrowing rules in 2021.

But recently, the ability to deduct interest on investment properties has been reinstated, loan-to-value ratio rules (LVRs) have been relaxed for both owner-occupiers and investors, and the stringent restrictions of the Credit Contracts and Consumer Finance Act (CCCFA) have been lifted.

Additionally, the end of July marked the introduction of the Government’s tax cuts, providing Kiwis with more take-home pay.

Vega CEO Harry Ferreira says the changes are very welcome for borrowers.

“Over the last six years, the housing market and investors have been really restricted, especially when it came to the CCCFA.”

The new version of the law came into effect in December 2021.

“When those restrictions came in, they were really onerous on banks and just handcuffed the ability to borrow and the ability for banks to process the right type of lending. It was so much so that they were forced to look at charges like Netflix, coffees and Kmart purchases.”

Ferreira says the shake-up of the CCCFA will most definitely have an impact when it comes to securing a mortgage.

“The new changes, and these adjustments are all part of trying to create a stable and a healthy housing market.”

“From my perspective, all of these will start to stimulate growth in the real estate sector.”

So how much could your borrowing ability increase by? Ferreira says it’s hard to give an exact figure as everyone’s situation is different, but he believes that most will be able to borrow more.

“It will ease. It's certainly not going to be dramatic, but these coupled with a steady decrease in the OCR over a sustained period of time, will start to breathe life into the housing market.”

WHAT WILL TAX CUTS MEAN FOR MY MORTGAGE?

With tax cuts having kicked in from July 31, average-income households stood to keep an extra $102 per fortnight.

While it may seem small, when you’re talking about property, Ferreira says every dollar counts.

“We had a client who was approved for $870,000, but it sold for $871,000. One of our brokers was with him, and because he knew their financial situation he was able to secure them the extra $1000.”

“So that $1,000 makes such a difference. While it might seem minimal in your back pocket, it can be the difference between whether a client gets a home or not.”

WILL THE CUT TO THE OCR MAKE IT EVEN EASIER TO BORROW TOO?

Ferreira says while most people will be thinking about what impact the OCR will have on retail interest rates, but he says people should also be excited about what it will mean for test rates.

Banks use test rates to make sure that home loan applicants can cope with movements in interest rates, and they’re set a lot higher than the rates currently being charged.

“You should see the test rates start to come down. The banks just won't do any business if they don't come down either.”

“That would start to stimulate more than anything, because more people will qualify for a mortgage.”

HOW CAN I STILL PLAY IT SAFE?

With all of these changes combined it’s making it a lot easier to borrow, and a lot easier to borrow more. So how can you make sure you don’t overcommit to a loan you might struggle to service down the track?

“The big thing is we've only seen a 25 basis point reduction, and we need to see a 250 basis point reduction as a minimum in order for us to get to a neutral cash rate which is around 3%, and right now we’re at 5.25%.”

“This is a little bit of a sugar rush, but when I say sugar rush it’s more of a little lick. We still need to be just as prudent today as we were the day before the OCR announcement, because things are super tough.”

Ferreira says taking things low and slow is the most sensible move.

“If you visit some of the smaller cities across New Zealand you see lots of businesses that are closed and doors that are shut, and that's a result of this absolutely tight spot that we're in in terms of affordability.”

“We've just got to make sure that this is stage one of a whole bunch more steps that need to take place. I think that we need to see at least another handful of rate cuts before we can start to clap our hands.”

It’s also important to note that there’s always a lag with any OCR cut.

“A reduction in the OCR today doesn't help anybody who's on the fixed rate and rate rolls over in 18 months. So those effects will take time to come through.”

Ferreira says the best thing you can do is talk to your broker to make sure your decisions are watertight.

“It's not just about the mortgage, it's about how to set yourself up for the mortgage, a future investment property, a batch, the types of cars you want to buy. A good broker should be able to give you a very clear view.”

“They’re like a financial doctor.”