How To Improve Your Chances Of Getting A Mortgage In New Zealand

House key and calculator placed on a mortgage application form with an 'APPROVED' stamp visible

16 Jan How To Improve Your Chances Of Getting A Mortgage In New Zealand

Getting a mortgage is about more than just saving a deposit – it involves understanding the factors that affect your chances of approval. By focusing on these key factors, you can not only improve your odds of success but also approach the housing market with greater confidence and potentially secure a home sooner than you think.

If your mortgage application has been declined and you’re unsure which way to turn, start by understanding why the bank said no. Whatever’s holding you back, whether bad credit, too much debt, a low deposit, or a property unacceptable to the lender, it doesn’t have to be the end of the road on your home-buying journey.

So, how hard is it to get a mortgage, and how can you improve your chances of getting one? Here are four reasons why mortgage applications get declined, what you can do when the bank says no, and tips to secure your mortgage preapproval.

4 Obstacles to getting a mortgage

1. Bad credit history

When lenders consider mortgage applications, one of the first things they’ll check is credit history. Look through your credit history and identify potential red flags that a lender may raise. How your repayments have been managed in the past will have a direct impact on your ability to secure credit in the future. There are a few things that can hurt your credit score, including:

  • Missed or late repayments on a credit card, loan, utility, or phone bill that result in a default.
  • Too many credit applications in a short space of time.
  • Bankruptcy or insolvency issues.
  • Little or no credit history.

Even with a bad credit history, there are ways to improve your credit score that will increase your chances of a successful mortgage application. Things like:

  • Paying your bills on time.
  • Fixing errors on your credit report.
  • Using credit wisely and only applying when you really need it.
  • Avoiding multiple credit applications.
  • Repaying debts to repair defaults.

Reviewing your credit report and exploring alternative financing options with the help of a Mortgage Adviser who specialises in bad credit home loans could uncover other possibilities that may have been missed.

2. Too many debts

To better understand how to improve your chances of getting a mortgage, it is important to know the different methods a bank uses to evaluate your financial circumstances. Banks in New Zealand must abide by the Responsible Lending Code, which stipulates that lenders use due diligence to determine if a borrower is able to service a loan without suffering financial hardship. Part of this process involves scrutinising the debt-to-income ratio (DTI).

DTI ratio is an affordability measure that compares your total debt from all sources against your gross income, which is the total balance of borrowers’ debts (to all lenders) divided by total gross income. Some lenders use this calculation to determine how much they’re prepared to lend or whether they’re prepared to lend. If the bank deems your DTI is too high, your mortgage application may be declined.

As each bank has very different lending rules, and some have higher test rates or may be less likely to lend at different times in the market cycle, it’s helpful to discuss your options with a Mortgage Adviser who understands each lender’s requirements. Furthermore, taking control of your debt with a debt consolidation loan could help you pay back your debt faster, which will improve your debt-to-income ratio.

3. Low deposit value

The Reserve Bank of New Zealand has put in place loan-to-value ratio (LVR) restrictions to limit the amount of low deposit lending—lending to borrowers with less than 20 per cent deposit for owner occupier loans or less than 30 per cent deposit for investor loans—that banks can do. Only a small percentage of banks’ lending can be done at this level. Just 20 per cent of the money lent out by the bank can be borrowed by low-deposit owner-occupiers and 5 per cent for low-deposit investors.

Once this quota is reached, banks can no longer lend to high LVR (low deposit) borrowers. As banks don’t necessarily advertise when they reach the limited amount of low deposit lending, working with a Mortgage Adviser is better when you have a high LVR (low deposit). A Mortgage Adviser will know which banks are still open to lending with a low deposit and which are currently constrained in doing so.

While LVR restrictions may limit the choice of lenders for borrowers with a high LVR, there are a few ways around this:

  • Find a lower-value property so you don’t need to borrow as big a mortgage.
  • Explore your deposit options and try to get a larger deposit together.
  • Consider non-bank lenders as an alternative: Unlike traditional banks, non-bank lenders are not bound by LVR restrictions, which means they have greater flexibility when it comes to low-deposit lending. This flexibility allows them to provide solutions for borrowers who may struggle to secure a home loan from traditional banks due to a low deposit. At Max Mortgages, we work with a broad range of lenders, including all the main banks and a diverse selection of non-bank lenders, to help you find a home loan solution tailored to your unique financial needs. Give us a call on 0800 ASK MAX (0800 275 629) to know more!

Work with a Mortgage Adviser to find the best deposit option for you, and consider personal loans to make up the required funds if you’re struggling to save enough for a home deposit or want to avoid paying Lenders’ Mortgage Insurance (LMI). A Mortgage Adviser can improve your chances of getting a mortgage by aligning your goals with the current market.

4. Property not acceptable to lender

Finding your dream home isn’t just about ticking the check boxes on your list. The lender will also want to know that your property meets certain standards and specifications. Because banks always want to minimise their own risk and ensure they’re not left in a compromised financial position, they may reject a mortgage application based on the property not being acceptable to the lender. Knowing what properties these are will improve your chances of getting a mortgage.

Risk homes that banks are reluctant to lend on may include:

  • Small studio apartments
  • Leaky homes with poor construction
  • Homes not compliant with local Council regulations
  • Homes in unusual locations
  • Homes with a niche market appeal that may be harder to sell
  • Homes in proximity to potential environmental hazards such as coastal erosion or contaminated land assessments.

In addition, banks will refuse to lend for homes that cannot be insured. Therefore, it is recommended to consult with an Insurance Adviser before purchasing a property to ensure that there are no issues with obtaining insurance or that insurance isn’t too expensive.

Before viewing a property or putting in an offer, consult your Mortgage Adviser to find out which homes lenders will consider and which are likely to decline. Your Mortgage Adviser can help you determine the type of property acceptable to lenders so you don’t waste time on properties that won’t get approved for a mortgage.

Tips to boost your chances of mortgage approval

Evaluate your expenses

Your borrowing power is assessed not only on your income but also on your expenses. Every lender has their own benchmarks and methods for calculating how much they believe you can borrow and pay back. They will look at factors such as the makeup of your household – for example, whether you’re a couple, have children, or have other domestic circumstances.

Banks and lenders can also take a granular approach to examining your expenses by looking through bank statements. They may assess how much you spend per month to gauge your average spending habits and create a holistic financial profile. Removing opportunities for lenders to question your spending may help improve your chances of being approved for a mortgage.

As you save for your deposit, you’re likely already tightening up your household spending and finding ways to cut expenses, but conducting your own expense audit will help remove this potential obstacle. If you don’t have one already, consider creating a realistic and adjustable budget over time.

Eliminate debts, boost your income

Boosting your savings and minimising expenses aren’t the only ways to improve your mortgage chances. Managing your debt and loans is also important. Personal loans such as car loans can limit your borrowing power and undermine your application from the lender’s perspective. Consider focusing on both saving up for a deposit and paying off loans. For instance, if you have extra support for your deposit, such as through a gift from your family, this is your chance to eliminate any loans, especially if they have high interest.

In the same vein, increasing your credit card limit could have an adverse effect on how much you can borrow. Even if you have a solid credit history, a higher limit may be considered detrimental. Where possible, lowering your limit could help support your overall financial position when it comes to mortgage approval.

Another way to improve your chances of getting a mortgage is by increasing your income, whether by supplementing it with another job or pursuing higher salaries. A lender may look at your employment history, but ultimately, your borrowing power’s greatest asset is your income level.

Improve your chances of getting a mortgage with a Mortgage Adviser

Mortgage approvals are based on diverse factors requiring attention at every home loan journey stage. Although these can seem overwhelming, the first step to strengthening your borrowing power and overall position is understanding what lenders look at and how they assess your finances.

At Max Mortgages, our Mortgage Advisers help Kiwis reach their property ownership goals with personalised advice for home loans NZ-wide. If the bank has said no to your mortgage application and you need help with bad credit home loans or debt consolidation loans to get you back on track again, get in touch with our team today.

Contact a Mortgage Adviser

 

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