How to apply for a mortgage under the new rules

As 2022 began, most Kiwis were enjoying a glorious summer and a break between Covid variant surges. But for mortgage applicants and people preparing to apply for increased credit, the reality of new lending rules was becoming increasingly apparent. It was common knowledge that lending criteria were about to tighten, but the reality took many people by surprise.

As with most change it helps to understand exactly what’s going on, so you can develop a plan to achieve your goals in the new environment. This guide is designed to help you make the right preparations to maximise your chances of mortgage approval.

Why have mortgages become harder to get?

Several factors have combined to make mortgage affordability, and therefore approval, more difficult. These include:

  • A rapid increase in house prices
  • Increasing mortgage interest rates with further rises widely expected
  • A reduction in the number of low deposit mortgages that lenders are allowed to approve 
  • Changes to the Credit Contracts and Consumer Finance Act (CCCFA)

Why was the CCCFA changed?

The government was concerned about vulnerable people being trapped in a cycle of increasing debt by using ‘loan sharks’ who offer relatively small loans at extremely high interest rates. They introduced legislation to enforce responsible practices, however the same new rules apply to all types of lending, including mortgages. Any lender not meeting the requirements can now be held personally responsible and face significant fines. As a result, the rules around checking whether someone can afford a mortgage have become very strict. 


How have lenders changed their approach to mortgage lending?

One of the things banks have always considered is the difference between your income and monthly spending. It’s known as your ‘uncommitted monthly income’ or UMI. They use this to work out the mortgage repayments you could reasonably afford, and therefore how much you could borrow. Of course you also need a suitable deposit. Bigger is better for deposits, because low-deposit mortgages are increasingly harder to get.

The main thing that’s changed around UMI calculations is how a lender looks at your recent spending. Instead of assuming you’ll tighten your spending on non-essentials, as most people do when they take on new debt, you now have to prove you can. 

Most banks now assess your future uncommitted monthly income based on your actual spending over the last three to six months. It’s the new reality of responsible lending from a bank’s point of view. Under the new law, they need to prove they took reasonable steps to ensure you could survive increasing interest rates and other financial challenges without getting into difficulty. As a result, mortgage brokers are reporting that banks have become ultra-conservative in their assessment of what a customer can afford.


How has the lending legislation changed?

Here’s a high-level view of the main changes the new legislation introduced when it was implemented on 1 December 2021.

  • Directors and senior managers of lending organisations need to create and maintain procedures to ensure the CCCFA is complied with. If they don’t, they could individually face fines of up to $200,000 per breach or be liable for damages awarded against their organisation.
  • The regulations set out specific enquiries a lender must make regarding each borrower. To assess the suitability of a loan these include what the loan is for, the amount and the required term. To assess whether a borrower relying on income can afford the repayments without substantial hardship, the lender must use particular tests to assess the borrower’s income and expenses. This includes verifying the information they use. 
  • The new assessment requirements must now be used for any material change to an existing loan, such as a new advance or increased credit limit, and not just applied at the beginning of a new loan.
  • For each borrower, lenders have to keep a record of how they decided a loan was appropriate and the repayments were affordable.

It’s easy to see why lenders are now going into a lot more detail when assessing mortgage applications. That also means applications are taking much longer to prepare and approve or decline. Deciding what’s suitable and affordable for any borrower is still open to some interpretation and each lender will have their own guidelines for their employees. 


What do lenders want to see in a mortgage application?

Banks and other lenders now want a lot more verifiable information than they used to request. You can expect lenders to go through your income, savings and spending in painstaking detail. While much of this will focus on the previous three to six months, it will also include questions about past savings, such as how you got your deposit together, and future plans that might affect income and spending. For example, applicants have been asked if they’re planning to have a baby in the next year or so.

While having your personal choices examined by a stranger in such detail might feel intrusive, it’s important to remember you’re asking to borrow a substantial amount of money. Lenders are also required by law to have proof of why they considered your loan to be suitable and affordable for you.

Although some media reports have suggested loans were declined because of purchases like takeaways, barista coffees and Christmas shopping, the lender’s focus should still be on affordability. Rather than suggesting these purchases are inappropriate, the lender is more likely to be highlighting them as expenses that could potentially be avoided, helping to ensure the requested mortgage might be considered affordable. 

Lenders’ questions around your past financial habits, future employment and life plans are probably designed to help them make verifiable decisions about the suitability of a mortgage and its term for your circumstances. They can’t really make those calls without knowing these things. 

The more general formulas for affordability and suitability used in the past no longer apply. The lender needs to have considered your specific circumstances. While their assessment criteria may seem overly conservative, getting it wrong can have a range of significant consequences for both you and them.


How to get ready for your mortgage application

Once you understand what a mortgage lender will look at and why, it’s easier to focus on improving your chances of application approval. In most cases it helps to begin preparing at least six months before you apply. If you’ll be applying with someone else, such as your partner, the preparations should apply to you both.  As much as possible, your main goals are to have verifiable evidence of:

  • Strong and stable income that will continue into the future
  • Sensible expenses that are as low as possible compared to your income
  • No unnecessary debt or credit facilities
  • A history of good financial management
  • A suitable deposit, ideally at least 20% of your expected property’s value

It also helps if you’re up to speed with the different types of home loans. So let’s start our preparation tips there.


Understand mortgage options and how they work

Whether you’re new to mortgages or haven’t applied for a while, it’s a good idea to make sure you understand the different types and have considered which mortgage or combination might suit your needs. This research helps you to ask relevant questions about the mortgage a broker or lender might recommend.


Get some idea of what you can afford to borrow

Although you’ll probably fine tune things over the coming months, it helps to start with an approximate idea of what might be affordable. This begins with looking at your income and expenses to find the repayments you might be able to afford, then getting a rough idea of your borrowing power.

To make this easier, check out these handy tools:

To explore how various mortgage options might affect your repayments, try this tool:


TOP TIP – Lenders’ calculations use much higher interest rates

To allow for rising interest rates and other affordability challenges, lenders will do their calculations with a much higher interest rate than the current ones. Many will use something like 7%.


Check your credit report

Almost everyone in New Zealand over 18 has a credit report. It’s one of the first things a lender will look at. 


It includes your borrowing and repayment history, and whether any utility companies have recorded a late payment in your name. The most important thing to check for is any payment defaults, particularly if they are incorrect.  

You can check your report for free online. Getting errors fixed can take a long time, so it pays to check as soon as possible. 

To learn more, see our article on what credit score you need to buy a house in New Zealand.


Get experienced advice early on

Discussing your plans with a trusted adviser – such as an accountant, lawyer or mortgage broker – can often get you on the right track faster and avoid common pitfalls. You should always engage a lawyer before signing anything, so making early contact is often a good idea. In a section below, we look at how a mortgage broker can help, including working with you to prepare months in advance.


Get rid of debts and credit facilities

Try to repay things like debts, personal loans, car loans and Afterpay purchases as soon as you can. If you have a credit card or overdraft facility, those limits will also count as debts, even if you’re not using them. Cancel them if they’re not needed. You’ll have to declare all existing debts and they’ll be included in your total debt-to-income ratio calculation. In other words they simply reduce the amount you can borrow with a mortgage. They may also be regarded as a sign that you’re not managing your money as well as you could.


Maximise your mortgage deposit

If you’re applying for a mortgage you’ve probably been setting money aside for some time or received a significant lump sum from something like an inheritance. The more you can get together before applying for a mortgage, the less risk you will be to the lender. In most cases you’ll need at least 20% of the property’s value, but there are low deposit options for first home buyers. 

Apart from obvious ideas, like going through your bank statements to work out where you can spend less and save more, here are some potential ways to boost your deposit.

  • Check whether you are eligible for a KiwiSaver first home withdrawal. If you’ve been in KiwiSaver for three years or more you may be able to withdraw all but $1,000 of your savings.
  • Check the Kāinga Ora website to see if you’re eligible for a First Home Grant or low deposit First Home Loan.
  • See if your parents can add to your deposit by gifting some money. Be sure to get a statutory declaration from them saying the money is a gift and not expected to be repaid, otherwise it will count as a debt and reduce the amount you can borrow.
  • Sell any non-essential possessions. Could you manage with one car instead of two? Do you need such an expensive car? How often do you really use that home gym equipment? You get the idea.
  • Another tip is to work out the difference between your current rent and the mortgage payments, council rates and house insurance premiums you expect to be paying; then pay it into your deposit savings account. This not only grows your deposit, it also helps to show a lender you can afford the expected mortgage repayments and extra costs of home ownership.

To learn more see our:


Try to increase your income score

It seems obvious, but it’s surprising how many people don’t think to ask their boss for a raise. Prepare well and explain how your work is adding more value than when your salary or wages were last reviewed. Also include some comparisons to similar roles in other organisations if you can.

If you’re in temporary or fixed-term employment, consider asking for a permanent full-time role if you can.  Be careful though – a three-month initial trial period is not considered permanent employment, so be sure to factor that into any decisions.

If any of your income is in cash, such as rent from a border, ask them to pay it into your bank account so there’s a verifiable record. 

If you’re self-employed or run your own business you’ll probably be asked for financial statements covering the last two years or more. For more, see our guide on how to get a mortgage when you’re self-employed.


Prepare a detailed budget

Now that you’ve adjusted your spending targets and income to ensure you can afford the mortgage you’ll apply for, it’s time to create a detailed budget to match. You can then keep a record of budget vs actual outgoings in each spending category to prove you can stick to the plan. Be sure to keep a note of cash purchases and items that may not be immediately clear from your bank statements. The lender will want to know about all cash withdrawals and expenses when considering your application.

Prepare your supporting documents

A good mortgage broker can let you know what’s required in advance, so your application progresses as smoothly as possible. In the meantime, here are some examples:

  • A clear story about the home loan specifics you want and why, so the lender can verify they’re recommending a suitable mortgage for you and your goals
  • Photo ID, marriage and birth certificates
  • Recent payslips and a copy of your employment contract or letter
  • Bank statements for last six months for all accounts including credit cards and loans
  • If part of your deposit came from a gift, a statutory declaration saying its non-repayable

There will be more than these, but it gives you some idea.


Have a back-up plan

Not everyone can afford to buy a home right now and only about a third of mortgage applications are successful. If you’ve prepared well, you’ll know you gave it your best shot. 

If your application isn’t successful, it’s important to understand why. It can help to have some questions ready for your lender or mortgage adviser in case this occurs. Try to get to the detail of why you weren’t successful and how you could change things to get a mortgage approved in the future. Remember to also ask where your application was strong, so you don’t change those things by mistake. 


How can a mortgage broker help you apply for a mortgage?

Mortgage brokers, also known as mortgage advisers, make home loan applications every day on behalf of their clients. Good mortgage brokers know exactly what different lenders are currently looking for in applications. They also know the various home loan products and mortgage combinations inside out. 

Finding an experienced broker you can trust to fully understand your situation and provide the best advice can make all the difference to your preparation. They can act like a mentor or coach to guide you through, right from the very early stages.

Mortgage brokers are usually paid by the lender for bringing your business to them, so there’s normally no direct cost to you. However, you may have to pay them a fee if you don’t go ahead with a suitable mortgage they’ve spent time arranging on your behalf. Also, brokers don’t necessarily work with all the main lenders. Before you sign up with a broker, be sure to ask for disclosure of what lenders they work with and all fees they might charge.

To learn more, see our articles on:


Murray Joiner -

Murray Joiner -

Murray’s background in bank communications has given him an understanding of what New Zealanders want and need, from a financial services point of view. He enjoys taking dry facts and turning them into articles that are both interesting and helpful. Murray Joiner is a copywriter working for

Murray Joiner -

Murray’s background in bank communications has given him an understanding of what New Zealanders want and need, from a financial services point of view. He enjoys taking dry facts and turning them into articles that are both interesting and helpful. Murray Joiner is a copywriter working for

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