Six months of home loan changes: Who are the winners and losers?

COMMENT: There wasn’t much for the real estate market to chew over in this week’s Budget. That’s not surprising considering the Government made significant changes to the market in March – extending the brightline test, boosting the First Home Grant scheme and ending the tax break that allowed landlords to claim interest repayments as a business expense. The small changes to the Warmer Kiwi Homes scheme will be welcomed by some homeowners but for the majority of first home buyers and property investors, there was no further news.

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The Government’s intention has been to level playing field for first home buyers and to put the brakes on a heated housing market, but the impact of the March changes have yet to be seen in house price figures and sales volumes. However, we have seen a remarkable change in bank lending policies.

Changes to lending policies are quite common but they are usually very minor. However, the Government’s March announcements resulted in significant changes to how the banks were assessing mortgages. In short, if you were declined a mortgage six months ago, you wouldn’t necessarily be turned down today. Conversely, those with pre-approval shouldn’t assume the banks would renew it once it expired.

The lending policy changes started with the reintroduction of loan to value ratio (LVR) restrictions in May, although most banks had fully implemented the new deposit requirements – 20% for a first home buyer, 40% for an investor – many months before after the Reserve Bank signalled their early return in December last year.

Following the LVR changes, banks started to nudge down their servicing rate - the interest rate used to calculate the affordability of a mortgage. Across the main banks this was generally around 6.5%, but the banks have been pushing this down slightly meaning the same income is able to afford a slightly higher purchase price.

At least one major bank has also fully embraced new builds, offering floating rates of as low as 1.79% for home builders, around half the price of their normal floating rate. While cynics would say that the supply of newly constructed houses was already tight and didn’t need support from the banks, the lower interest rate does help those who are building through a progress-payment build, which often requires temporarily paying both rent plus the new build mortgage as the build is completed. The inclusion of additional cash bonuses for purchasing a Homestar 6 rated home encourages new-build buyers to search out the higher quality developments.

For investors, at least one bank has made an adjustment to how they calculate rental income from investment properties, adjusting for the increased tax costs that investment properties will eventually pay. Other banks will inevitably follow suit.

It’s difficult to make a sweeping statement as to who has been penalised and who has been rewarded by the long list of bank lending policy changes. In most instances, first home buyers will find it slightly easier to purchase than they did six months ago. Property investors on the other hand - often blamed for house price increases - are facing marginally tougher mortgage criteria. But this won’t be true for all first home buyers or investors. With such a large amount of policies having been altered, anyone who applied for a mortgage in 2020 or earlier may consider approaching the bank or talking to a mortgage adviser again to see how the new lending policies have affected them.

- Rupert Gough is the founder and CEO of Mortgage Lab and author of The Successful First Home Buyer.