What happened in the world of mortgages
2021 was a big year for the property market. While commentators had predicted that Covid-19 would cause a big correction in house prices, values steamed ahead and in the latter half of the year the national median price was up more than 30 per cent on 2020.
But there were a lot of changes that affected home loans in the year, which could play a part in how 2022 shakes down for homeowners and aspiring buyers.
2021 started with predictions of a negative official cash rate. But virtually within weeks it was clear that was not going to be needed.
The economy shot out of the 2020 lockdown, and by the middle of the year, retail interest rates were rising at most lenders. In October, the Reserve Bank announced the first increase in the official cash rate in seven years. The 25-basis point increase, taking the rate to 0.5 per cent, would have happened earlier but was postponed due to the outbreak of the Delta variant in the North Island. Interest rates are predicted to continue to slowly increase over the coming years, although rising inflation could put pressure on more quickly.
Loan-to-value restrictions, which were removed when Covid-19 first hit New Zealand, returned in March, allowing banks to lend only up to 20 per cent of new loans to owner-occupiers with deposits of less than 20 per cent, and only 5 per cent of new lending to investors with deposits or equity of less than 30 per cent.
By May, the requirement had increased for investors to 40 per cent, and then from November 1, the owner-occupier limit tightened too, allowing just 10 per cent of new lending to be to owner-occupiers with less than 20 per cent deposit.
As part of changes to the Credit Contracts and Consumer Finance Act, new rules from 1st December tackled the way that lenders work out whether borrowers can afford their loans.
Lenders can no longer just rely on the information provided by the borrower and have to show they’ve made reasonable inquiries about the affordability and suitability of a loan. This is a key area where having a mortgage adviser like us in your corner can really benefit you: we can help you navigate this process and understand the new requirements.
If you have equity in your home and you’re looking at freeing that up with a mortgage top-up, the affordability change is likely to affect you, too.
When you apply for more lending, you’ll have to explain why you’re taking on more debt. If you’d like to borrow against your house for renovations, you might need to be willing to supply a quote for the work you’re having done. You might also find you’re facing extra criteria, like a reduced period of time in which to pay off the new borrowing. Once again, get in touch if you’d like to discuss this further.
Not a mortgage change but important nonetheless, the Government has extended the period of time in which the bright-line test applies on the sale of certain property. This test requires that profits made from a sale are taxed at the seller’s marginal tax rate.
In March, the Government said profits would now be taxed on properties sold within ten years, instead of the previous five (except for new builds). The rule usually only applies to investment properties, but there are ways that owner-occupiers can be caught out – make sure you contact a tax professional to learn more.
In 2021, the Government also announced it would phase out investors’ ability to offset their home loan interest costs against the rent they receive on their properties. That means that many investors face a bigger tax bill in future. But the rule will not apply to properties built after March 2020, and there are signs that it’s prompting some investors to shift their attention to new properties instead.
Need a hand navigating the market?
Things are changing quickly at the moment, and it can be challenging to keep up with all the rules. Fortunately, it’s our job to take care of that for you. So please don’t hesitate to contact us: we’ll help you work out what you need to know to achieve your dreams in 2022.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.