How To Get Approved For A Mortgage, According To Experts

Mortgage rates are rising fast, and Kiwis are having a hard time catching up. Along with the skyrocketing home loans, credit availability is also becoming tighter. Even if they land the right plan thanks to tools like a mortgage calculator, it's just not that easy to get approved.

Housing prices has been one of the most pressing issues in NZ for the past few years. With the recent changes in the mortgage market, it doesn’t look like it’s going to get easier to own a home.

What does a new mortgage borrower have to do?

How is the mortgage market performing?

Since the official cash rate increased on 6 October 2021, major banks like ASB, ANZ, and BNZ raised their interest rates, too. This started a series of changes in the housing and mortgage markets including:

• Tightening of loan-to-value restrictions (LVRs) - 10% of a bank’s lending goes to owner-occupiers with a 20% or less deposit, which started on November 1st. Previously, 20% of the lending went to low-deposit borrowers. This aims to stabilise the economy amidst the unprecedented growth in house prices.
• Requiring lenders to provide records of enquiries - Credit Contracts and Consumer Finance Act (CCCFA) requires lenders to include an assessment of why the loans were affordable and appropriate. For some borrowers, this may mean getting disapproved of the loan that has been previously approved.
• Increasing the “uncommitted monthly income” rate - For some banks, the “uncommitted monthly income” increased by more than double, from $350 to $800 per month. This refers to the amount of money left after all your monthly living expenses have been deducted from your income.

All these changes contributed to having more difficulty in getting a mortgage approval, especially for first-time buyers. Nonetheless, the Reserve Bank is looking for some measures to loosen the restrictions and increase mortgage approval rates.

How to get your mortgage approved, according to experts

As mentioned, you can still get approved for a mortgage even in these challenging times. Here are some expert advice on how to increase your chances of getting approved.

1. Monitor your monthly expenditure

As lenders look into your “uncommitted monthly income,” it’s wise to monitor your monthly expenditure. Banks take a look at how you spend your money and whether your bad money tendencies are habitual. As much as possible, avoid non-essential spending such as:

• Excessively dining at restaurants
• Laybuys
• Regular voluntary donations
• Buy now, pay later deals
• Gambling

Ideally, you should do it at least three to six months before you submit your application. Campbell Hastie, Head Honcho of Hastie Mortgages, says, “If you can't demonstrate that behaviour is going to stop or change, it will be included and it will impact on your ability to service a given amount of debt.”

Pro-tip to achieve this: Keep track of all your actual expenses to prove that you don’t live from one paycheck to another. You don’t need to skimp on your household budget, of course. The lenders mainly focus on how you spend your money, not on how much money you have.

Read: Best Personal Finance Vlogs In NZ: YouTube and TikTok

2. Check your credit report and credit score

Checking your credit report doesn’t directly affect your chances of getting approved, but it’s very useful when looking at where you stand financially. This allows you to check whether you have defaulted on some of your debts.

You can check your credit score for free through credit reference agencies such as Equifax, illion (formerly Dun & Bradstreet), and Credit Simple. They determine your credit score through:

• Debt collections
• Electoral roll information
• Court information
• Credit search data

How to solve bad credit score: There’s only one way to solve a bad credit score: pay your defaults. While settling these defaults, make sure you only acquire minimal and necessary debts. This way, the lenders know that you spend your money wisely.

Read: How Does Credit Scoring Work In NZ?

3. Get an idea of your repayments using a mortgage calculator

Only applying for a mortgage plan that matches your financial qualifications is the best way to easily get approved. To know if the home loan is right for you, use a mortgage calculator. This way, you know how to work out your repayments and terms.

As much as it’s tempting to shoot your shot for a mortgage plan with a low-interest rate or deposit, it may only hurt you if it’s not the right deal. Rejected applications can actually hurt your credit score, leading, of course, to more rejections in the future.

Where to find a mortgage calculator: Glimp provides a trusted mortgage calculator that lists all major lenders. It has a comprehensive list of options, including the amount you want to borrow, term, fixed mortgage rate, among other factors.

Read: How To Get A Mortgage In New Zealand: The Beginner’s Guide

How did Kiwis like yourself get their mortgage approved?

Denis, glimp's CEO and Co-Founder, bought his first home in South Auckland in November 2020. His main goal was never to purchase a home, but to save money to invest in shares and grow his business. 

He was motivated to save because he almost had $0 under his name when he quit his job at a big accounting firm to open a business in 2015. He even had a negative balance due of his student loans.

Even as his business generated more revenue, he lived frugally. Eventually, he was able to save up enough money for a home deposit.  Here’s a look at his journey.

What was his budget and price range?

His initial budget was under $650,000, considering the location of the home and his financial capability. Of course, his aim was to get it even cheaper if possible, so he can pay lower mortgage repayments and reap the full benefits when house prices grow. 

However, he ended up spending more than his budget. With the changes in the housing market brought about by COVID-19 and new banking policies, he has set his house purchase to be at least $700,000. 

What are the steps he took to purchase a house?

His house purchase included one key step: consulting a lawyer. This is one of the steps that a lot of home buyers would rather skip since it can be really expensive. However, a lawyer can help you with legal agreements that come with the house purchase.

Here's how Denis got his first home:

1. Get a loan pre-approval to have an idea of how much can you afford on a house
2. Begin searching for houses on real estate listing websites like TradeMe
3. A series of going to your chosen homes, checking them out, and putting your offers
4. Once your offer got accepted, it’s time to complete paperwork including:
• Reviewing house purchase agreement with a lawyer
• Checking if you’re eligible for a KiwiSaver withdrawal
• Working out your mortgage and repayments with your lender
5. Sign all the necessary documents and finalise your purchase

Read: A Step-By-Step Guide On Buying A House In New Zealand

He noted that most of the work was on the lawyer’s end. They sort all the necessary paperwork and all you have to do is sign the documents. His pro-tip was to negotiate a fixed amount with your lawyer. If this doesn’t work out, limit your exposure to them so fees don’t skyrocket.

Know more about Denis’ finance tips on investment and purchasing a property in New Zealand. Connect with him on TikTok!

Get an estimate on your dream home. Use glimp's FREE mortgage calculator here!