Author Katrina Shanks, CEO Financial Advice NZ Article originally published in

Nobody wants anyone to over-commit financially and make themselves vulnerable when borrowing for a house.

This is the reason the Government made law changes which come into effect on December 2. They will impact on anyone, from first homeowners through to those in their 50s, who are obtaining finance.

We know young Kiwis are feeling locked out of the property market right now, and the changes, along with rising mortgage interest rates, may make them feel like that first home is never going to be achievable.

The changes are to the Credit Contracts and Consumer Finance Act. They will result in lenders having to apply more scrutiny to mortgage applications and provide more tests to determine the affordability of loans.

This means you will have to be more prepared to demonstrate you are capable of good financial behaviour which shows you are able to service a mortgage.

You will have to understand every line in your bank statement on where you spend your money weekly, monthly and yearly.

It will be interesting to see if these changes do impede first homeowners applying for a mortgage as the policy changes are far-reaching.

Combine these changes with the Reserve Bank’s minimum deposit requirements, and there is no doubt you will need to be very well-prepared before you go to a mortgage adviser or bank.

Minimum deposit requirements mean you must have a deposit of at least 20 per cent of the value of the house you are buying before a bank will approve a mortgage. Only if you have a high income will a smaller deposit be approved.

All this means banks and lenders will be looking very closely at every detail of your financial wellbeing.

Remember, they need to know you are able to service the mortgage because if you can’t, that causes them problems. They want you to succeed because that way they succeed too.

So, how do you prepare for this extra scrutiny? Here are some things to think about:

 – Set a budget and then monitor yourself against it. You need to know exactly what your fixed and variable costs are, and what your need-to-have and like-to-have expenditure looks like.

– Look after your debt. Ensure you have paid off as much debt as you can – pay the credit card on time, and reduce your short-term debt such as buy now pay later purchases.

 – See if you can have excess funds left over after every pay. This will show you have emergency money and good financial disciplines.

 – Look at your income wastage. How much money is going on non-essential purchases you might be able to plug to get your savings looking better?

 – Think about protections for your income, such as an income protection policy.

 – If you are looking at some big life changes, such as having a family, make sure you have a plan for the extra costs and/or the reduced income that come with them.

 – Have a peek at your credit rating and see where you are sitting. If need be, make sure you are paying all your bills on time, so late payments do not affect the rating.

 – Be in the correct KiwiSaver plan for you and ensure you are saving the maximum you can.

It is easy to talk about being prepared when you are looking to borrow money, but it can also be the beginning of good financial behaviours that will have a positive impact on your lifestyle into the future.

Put a plan in place and chip away at it until you achieve it. Initially, it may be just about understanding where your finances are at and owning some of the decisions you have made.

Then start by making small changes. Over time, they can add up to a big impact.

For example, Black Friday has just been and gone. Did you purchase anything? Was it a must-have or a like-to-have?

Did you purchase it on buy now pay later, or on a credit card because you did not have the funds available? Looking at the purchase now, do you regret it or think you could have spent the money more wisely?

The first change you may make may be not to go to sales or shop online, so you are not tempted to buy things you do not want or need.

I regularly have a look at where I am spending my money and regularly tell myself to make small changes.

In the words of my financial adviser, keep on reviewing what you are doing and where you are going, and as circumstances change, review and change with them.

Katrina Shanks is the chief executive of Financial Advice New Zealand.