All banks in New Zealand must adhere to the Responsible Lenders Code. It’s a set of rules designed to stop borrowers taking on loans they can’t afford to service.

So far, so good. However, I’ve noticed that many financially solid citizens are finding their mortgages declined because of the way these rules are applied.

It’s to do with affordability. When assessing your loan application, the bank must take into account all your day-to-day expenses – from groceries to insurance premiums to holidays. Child maintenance, school fees and credit card limits all come under scrutiny.

This last item trips up many people. They have been offered higher credit limits over the years, and the Code now forces banks to assume you’ve maxed out your cards. Even if you don’t carry any credit card debt, simply having a card with a high limit will be counted against your mortgage.

There’s also something called Sensitivity Analysis. Think of it as stress testing. The bank applies a hypothetical higher interest rate against all your debts, including the proposed mortgage. If this puts your finances underwater they will reduce the amount on offer.

Fore-warned is fore-armed. If you’re looking to buy a property, talk to us early in the process. We can help you get things in order, so your loan application doesn’t fall foul of the Responsible Lenders Code.

Are you looking to restructure your mortgage or apply for a new one? Make sure you talk to us first. Make an appointment.