Every week I meet clients who proudly tell me, “I’ve done my numbers and I can afford it.”

Really? The bank may not agree.

That’s because banks in New Zealand operate under the Responsible Lenders’ Code, which means they look at all your potential liabilities and assume the worst case.

Say you have home loans fixed for five years at 5% interest p.a. The bank will assess these loans at 7.25%. They will also look at all your credit cards and assume you have maxed them all out. It’s called sensitivity analysis, and it’s a way for banks to assess your ability to service debt in the foreseeable future.

When I take clients through this they often say, “That’s ridiculous – my loans are fixed for five years at 5%. Why assume the worst?”

It doesn’t matter. That’s the rule the banks apply, under the guidance of the Reserve Bank, which is determined to minimise the risk of a credit blowout.

Here’s the way forward. Minimise short-term debt. Don’t take out those Gem Cards, Q Cards or other consumer debt. Decline the beguiling offers to increase your credit limit. Maybe cancel a card or two.

If there are young adults in your family hoping to buy property, let them know that debt is not their friend. Take a long, hard look at any student loans.

As my mentor Dr Fred Grosse says, “This too will pass.” The banks will eventually change their lending rules, but for the time being their hands are tied. So be prepared.

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