A new government has brought a raft of new housing policies with it. Some were pitched on the campaign trail, and others announced around budget day, but all have now or are about to come into effect. That coupled with the Reserve Bank’s changes to lending rules has meant a bit of a shake up around the process of securing a loan.

So what does that mean for you and your ability to borrow and buy a home?

BRIGHT-LINE CHANGES & INTEREST DEDUCTIBILITY

Under bright-line rules, sellers are required to pay income tax on any profits made from the sale of residential properties that don’t qualify as their main home. Currently, those who sell existing property within 10 years, and new builds within five are taxed.

But from July 1, all property falls under a two-year test. This means that from then onwards, people who sell residential investment property within two years of buying will have to pay tax on any gains, and equally someone who on-sold a property they bought after two years won’t be taxed.

When it comes to interest deductibility, from 1 April this year landlords were able to start claiming 80% of the interest incurred for funds borrowed for residential property. This is regardless of when the property was acquired or when the loan was drawn down. This will be increased to 100% of the total interest incurred from April 1, 2025.

Amy Stevens from Slice says both measures clearly favour investors.

“I guess anything that favours investors is not so great for first time buyers. It just means that there's more people on the market, so there's more competition.”

Stevens says overall the government is really limited in what it can do to try and impact the market.

“What they could really focus on is probably regulation and supporting housing supply, as opposed to trying to kind of encourage or discourage demand.”

She says the Reserve Bank does have those tools, and that's why we've seen some massive changes in the space.

LOAN TO VALUE RATIOS (LVR)

One of those changes by the Reserve Bank is adjustments to LVRs.

“It's not going to have the most immediate impact, it's more of a long-term impact on our housing market in New Zealand.”

The Reserve Bank is loosening restrictions and increasing the amount of buyers that banks can lend to with a low deposit.

From July 1, banks are able to lend 20% of loans to owner-occupiers with a deposit of less than 20%, and 5% to investors with a deposit or equity of less than 30%.

Now, only 15% of lending can be to owner-occupiers with less than 20%, and investors need 35%.

“So there's a little bit more bandwidth for them to lend to low deposit borrowers. We're seeing a lot of people with low deposits, and we know that one of the biggest problems for first time buyers is securing that initial amount.”

DEBT TO INCOME RATIOS (DTI)

Stevens says the Reserve Bank might be enabling some first home buyers and investors on the LVR side of things, but they’re tightening things on the debt-to-income side.

Debt to income ratios mean exactly that - the amount of debt a borrower has taken on relative to their gross, or pre-tax, income. If you’ve borrowed four times your income, you have a DTI ratio of four. If you’ve borrowed eight times your income, your DTI ratio is eight.

Your total debt will include things such as any existing home loans, personal debts (e.g. car loans), and student loans, as well as the limits of any credit cards and overdrafts, plus any new loans being considered.

Your total gross income will include your annual salary, rental income, and other extra income you receive.

From July 1 owner-occupiers will be limited to borrowing six times their pre-tax income and for investors seven times. The Reserve Bank will also limit the amount of high-DTI lending banks can make.

They’ll be able to make 20% of new owner-occupier lending to borrowers with a DTI ratio over six and 20% of new investor lending to borrowers with a DTI ratio over seven.

“That's the gap they're trying to address with debt to income. They're trying to limit the amount of debt you can take on relative to income.”

“Whilst that's not limiting the purchase price itself, it is indirectly, because if you limit the amount of debt people can take on, you limit the amount of properties they can buy and the amount of debt demand that can occur.”

Stevens says we’ll really start to see the effects of DTIs when interest rates start to come down, especially with investors.

“Because they're limiting the amount of overall debt you can have, they’re preventing those buyers from going again. So that's going to be a positive longer-term change for first time buyers.”

“We're expecting that change that's limiting how much lending people can take will in turn limit the growth of the housing market, and the increase in purchase prices.”

Dylan Ferreira from Vega agrees that investors will probably feel most of the effects.

“With DTIs, most people who want to really grow and have a large portfolio won't be able to access that as quickly as they would have in the past.”

“I guess the Reserve Bank is really just trying to gear up for that next boom. They don't want what happened in that post COVID period to happen again, where interest rates were low, stress tests were low, and a lot of people were leveraging themselves up as much as they could.”

Ferreira says in the current market most banks are operating below the incoming DTI ratios anyway.

“What we're seeing as the general rule of thumb is that about five times debt to income is being approved at the moment by banks through their calculations and the high-test rates.”

FIRST HOME GRANTS

Earlier this year the government announced that it would scrap First Home Grants.

The programme had paid up to $10,000 per person to assist them to buy their first home. Not everyone was eligible for first home grants. For a couple to be eligible, they needed to earn less than $150,000. For a single buyer, they needed an income below $95,000.

They needed to have been contributing to KiwiSaver for at least three years too.

There was also a house price cap, which varied region to region. The lowest cap was in areas such as Ashburton, at $400,000 for existing houses and $650,000 for new builds.

On the other end, in Queenstown, the new build cap was $925,000 - while existing houses worth up to $875,000 were eligible.

The maximum grant for an existing house was $5000, per person. It doubled to $10,000 for new builds.

Stevens says while its removal will be a blow for some, she believes the impact won’t be as big as we think.

“The total number of people who miss out is quite an underwhelming number.”

“I do think that money can definitely make the difference between having a deposit or not. But you could also sell your car, you could get a side hustle, get a loan off a family member or purchase with someone else to ease the pressure.”

She says there’s still other pathways to home ownership.

“It's generally not the make or break in someone's buying journey. It's more of a top up. It's a welcome top up, of course, but I don't see it as being as impactful as debt-to-income ratios on first time buyers.”

Dylan Ferreira from Vega says the impact the grants had on his clients also wasn’t major.

“I've found that for the people that had it, it wasn’t the reason they were able to get the lending, it just helped make that process slightly easier or gave them a little bit of a leg up.”

He says that there were only a small number of people who met the threshold for income and purchase price as well as a particular house working for their family situation.

“Whilst I think there was all the right intent, I just don't know if it has helped that many people. So, I just don't think it's going to be a major issue not having it anymore.”