The first thing that comes up when you start planning to buy a house is to determine your budget. Once you have a budget in mind, the next step would be to work out the amount you would like to borrow for your first home. The amount you are able to borrow depends on several factors related to your borrowing capacity. When buying a home or a property, your borrowing capacity will affect the amount you could spend to purchase the property. These factors will improve your home loan eligibility significantly. Some of the factors which can help you maximise borrowing on your first loan are listed below.

Improve your credit score 

The simplest method to improve your credit score is to be regular with your credit card and loan payments. The interest rate offer you get on a loan depends on your credit score. Raising your credit rating insures a better interest rate, which means you will be able to borrow a higher loan amount. Good credit scores assure the lender that you will make the payments on time and can be trusted with a higher loan amount.

The easiest way to improve your credit score before applying for a home loan is by paying your bills and credit card payments on time and limiting excessive or new lines of credit. Holding too many credit enquiries on your report could lower your credit score.

Arrange a bigger deposit

The amount borrowed by a lender may depend on the deposit you make in relation to the value of the property, this is known as the loan-to-value ratio (LVR). Putting down a larger deposit amount (say around 20%) will save you from paying PMI (private mortgage insurance) and saves you a lot of money over a period of time. Bigger deposits could also reflect that the borrower can save money and make the repayments on time.

Lower your debts

It is a good idea to lower your outstanding debts or pay them off completely before applying for a home loan. If your debts are cleared or at least lowered, you could have a better chance of getting a higher loan amount from the lender.

Opt for a longer tenure loan

The normal period of a home loan extends for 25-30 years. If you opt for a longer tenure for your loan, say around 40 years, it will lower your repayment amount. Although increasing loan-term makes your repayments low, the total interest to be paid towards the loan will get higher.

Reduce unnecessary living expenses

Another method of saving money is to cut unnecessary everyday expenses. The more you spend, the lower the loan amount you would get. It is advisable to reduce spending on things that are not needed and commit that amount to your savings. Creating a budget helps here  as you could clearly track where your money is flowing, which allows you to make changes towards maximising your savings.

Organise financial records

It is essential to keep your financial paperwork up to date, especially if you are self-employed. Lenders usually check the records of your account and tax payments for at least the past 2 years. It is best to organise your financial statements before you visit a lender to apply for the mortgage.

Source additional income

Your home loan amount can be increased if you have another source of income, like earning an extra income in addition to your main job. It could be anything from getting rental income, tax refunds, side-hustle or income from doing multiple jobs.

Take joint loans

Choosing to take joint loans with your partner can help you to maximise your loan amount. A lender will consider the incomes of your partner and you, which helps in getting a higher loan amount.

Getting help from family

Using a guarantor like your parents or a family member or you can take help from the family offset mortgage. The lender will assess your guarantor’s financials and may offer you a higher loan amount. It is important to remember that in the case you are not able to make the payments, your guarantor will be liable to pay off the loan.

Use a broker

The expert mortgage brokers at Accord home loans can guide you through the loan process. Our team will help you to choose from various offers to match your requirements.

As life situations change so will the financial condition. Having a mortgage check-up done is a great way to ensure that your home loan still aligns with your goals. Mortgage review should be done regularly to check where you stand with your finances.

As the economic and financial trends change, you may observe a shift in your income which creates a crucial need to make some adjustments in your finances. That’s one of the reasons you need regular monitoring of your mortgage.

Our financial advisors will help you through the process of mortgage check-up. Let us look at some of the things that we could review.

Assess interest rates
The interest rates on home loans fluctuate and can differ from what you are paying currently. You could be eligible for a lower interest rate. A mortgage check-up will give you the right knowledge of the current interest rates. It unfolds an opportunity of moving to a loan structure with a better interest rate when the current loan comes up for renewal. A change into a new interest rate plan could save you thousands of dollars over the period of time.

Revise your loan offer

It will be worthwhile to refinance and choose a different loan offer that meets your current requirement. As per your financial situation, you could opt for a home loan plan with a shorter-term and pay off the mortgage earlier or refinance at a lower rate which will lower your monthly payments. Either way, you would be able to save more, giving you freedom to contribute towards other expenses or investments.

Consolidate debts

If you are paying high interest on different debts, consolidating them and getting a new loan to pay off the debts is a smart move. Debt consolidation should be considered to manage multiple loans into one easy repayment to save both money and time.

Improve cash flow

A mortgage check-up gives you the option to refinance your loan. Getting a new loan with either a low-interest rate or a longer term based on your specific needs will help you manage your finances and ongoing expenses. By making these changes you can save money regularly. Refinancing if done right, could help you maximise the tax refunds and improve your cash flow.

Benefit from home equity

Regular financial check gives you the chance to review your current and future money related goals. Based on your financial goals, you can leverage your home equity and then put the benefits to use for home improvements, making other investments or using it for your child’s education, etc. When you have the right loan plan, you feel financially secured and enjoy peace of mind.

Getting a mortgage check-up will help you to make right decisions. Our experts at Accord home loans can guide you through the process, review your situation, advise you on how to make better financial choices. It’s a great way to know your options and then choose the option that matches your needs. Schedule your mortgage check-up with Accord home loans and make the most from our services and your money.

A quick checklist entailing the benefits of getting a mortgage check-up

• Get better loan terms or end mortgage insurance
• Merge high-interest loans
• Improve monthly cash flow
• Use the growing home equity as leverage
• Benefit from the tax refunds
• Achieve contentment from your financial well-being

It has been three weeks since the Labour Government’s controversial Housing Policy announcement and the debate continues unabated on its merits and demerits. It has drawn mixed reactions from all sides; the first home buyers who are currently renting and the investors.

What is the nitty gritty of these housing measures announced on the 23^rd of March?

For investors –

• The Brightline test has doubled from 5 to 10 years – if a property is sold within 10 years, any capital gain will be subject to tax. New homes may be exempt, but this is yet to be clarified.
• A landlord cannot claim the interest cost as an expense of owning a rental property – this will be phased in over the next 4 years. Previously interest was a deductible expense.

For first home buyers who are eligible for the First Home Loan and Grant–

• There has been an increase in house price caps in Auckland, Wellington, Nelson/Tasman, Napier/Hastings, Waikato, and Dunedin; with new builds seeing the highest increase. This will help these areas where access to a First Home Grant had become increasingly out of reach.
• There has also been an increase in the income caps for both single first home buyers (to $95,000 p.a.) and more than 2 people ($150,000 p.a.).

I have been swamped with calls from my anxious clients who are investors and also from first home buyers eager to discuss how the policy changes will affect them.

First Home Buyers

The increased income caps and higher house price caps will certainly help more first home buyers to access the First Home Loan and Grant.

The first home buyer’s reaction has however been mixed with some from regional centres being happy, and others from big cities wanting to have the house price caps match the realistic price tags in their cities.

The first home buyers have been asking me how their plans to save for the home deposit will be affected by rent increases, due to removal of interest deductibility. Though a possibility, any rent increases will most likely mirror the gradual phasing out of the interest deductibility over next 4 years.

For others they see this as a possible opportunity to buy sooner as it is likely there will be fewer investors competing in the housing market. Though how long the investors will stay away from the markets will depend on the government working out the details on allowing interest deductibility and the application of bright line test for newly built houses.

My advice to the first home buyers has been to stick to their current saving plan for deposit and seek advice if there is any material change to their financial position.

The Investors

The investors’ immediate reaction has been of anger, confusion, and despair. They never expected the government would remove interest deductibility, as this is a legitimate expense which all other businesses are allowed to claim.

For many “Mum and Dad” investors, owning a residential investment property has been an important part of their retirement plan.  The removal of interest deductibility will have a serious impact on their bottom line for many, as this will delay their ability to become cashflow positive, and they may have been relying on this income to part fund their retirement.   This may lead to more investors needing to sell their investment property at retirement to realise any capital growth rather than holding for the long-term income.

Some of my investor clients have expressed that they will now look to sell their property as they do not have the extra cashflow to meet the higher tax expense while others are looking to increase the rent to match their extra tax costs.

The situation is unique to each investor and after working through their individual financial plans, the conclusion has been that there is no need for any immediate drastic action. Over the next few years my clients’ financial plans will need to be reviewed and adjusted along the way to ensure they remain on course to achieve their financial objectives and goals.

The Impact

The noted economist Tony Alexander has just released his survey of Real Estate Agents to gauge the effects of the housing policy announced two weeks ago. According to Real Estate Agents, fewer people have been attending auctions and open homes and there has been a drop in the number of investors looking to buy. The number of first home buyers has also dropped since February 2021.

However firm bidding at auctions over the past three weeks indicates that the prices are still holding up which could be due to the first home buyer’s sentiment of FOMO (fear of missing out).

It helps to have your financial plans reviewed periodically by your Financial Adviser, especially when there are significant policy changes. Now is a great time to consult your financial adviser to assess how the policy changes will impact you and what action you need to take (if any!) to stay on course with your financial plans. I am more than happy to discuss these matters with you and provide advice as to how you might best navigate these latest changes.

Rajendra Bulchandani, Mortgage Specialist