Buying a home is a big step, and knowing how much you can borrow is essential to planning your homeownership journey. While it might seem like a purely financial decision, there are many factors—like market trends and new rules—that can impact how much a bank is willing to lend. Understanding these factors can make it easier for you to take that important step onto the property ladder.
In New Zealand, how much you can borrow for a home loan depends on a few key things: your income, expenses, deposit, and current interest rates. Let’s break these down so you can get a clearer idea of what affects your borrowing power.
Income and Expenses
The first thing lenders look at is how much you earn versus how much you spend. This includes your salary or any other reliable income, such as rental income or profits from a business. From there, they’ll look at your regular expenses, like living costs and any other payments you make, such as credit card bills or loan repayments.
The banks put these figures into a mortgage calculator to work out if you can afford the loan and ‘stress test’ the loan to make sure you could still afford the repayments if the interest rates were to increase. Currently the main banks in New Zealand are stress testing loans at a rate of 8.5 percent, even though the average one-year rate as of mid-September is 6.19 percent.
Lenders also use something called a debt-to-income (DTI) ratio. This compares the amount of debt you have with your income. In New Zealand, most lenders follow new rules set by the Reserve Bank, which limit how much you can borrow based on this ratio. If your debt is more than six times your annual income, or seven times for an investment property, you may find it harder to borrow. If you’re unsure how this applies to you, our mortgage experts can guide you through it.
The Impact of Your Deposit and Loan-to-Value Ratio (LVR)
The size of your deposit plays a big role in how much you can borrow. Generally, in New Zealand, you’ll need a deposit of 10% to 20% of the property’s value. A bigger deposit usually means you can borrow more because it lowers the loan-to-value ratio (LVR)—the percentage of the property’s value you’re borrowing. Lenders prefer an LVR below 80%, as this reduces their risk. If your LVR is above 80%, you may need to pay for Lenders Mortgage Insurance (LMI) or face higher interest rates.
If you’re a first-home buyer with a lower deposit, we can help you understand what options are available, including any exceptions or special programmes that might apply.
Interest Rates and What These Mean for Borrowers
Interest rates have a big impact on how much you can borrow because they affect your monthly repayments. While interest rates have been high recently, they’re starting to come down, which could help you borrow more by lowering your repayments. We can help you find the best rates and deals available to make sure you get the most out of your borrowing power.
Credit Score and History
Your credit score tells lenders how risky it is to lend to you. A strong score can make it easier to borrow more and secure better interest rates. If you’re unsure about your credit score or want advice on how to improve it, we’re here to help.
Lender Policies and Criteria
Different lenders have varying criteria when it comes to borrowing—some may be more flexible depending on your income, deposit, or financial circumstances. As mortgage advisers, we’re not aligned with any single lender. This allows us to streamline the process by helping you find the lender best suited to your needs. Instead of approaching multiple banks on your own, we provide a comprehensive service, guiding you toward the most suitable option based on your unique situation.
Estimating How Much You Can Borrow
To get an idea of how much you can borrow, book a free consultation with one of our registered financial advisers. While an online mortgage calculator is a good starting point, it won’t take into account every detail of your situation. That’s where we come in. Our specialists can help give you a more accurate idea based on your specific circumstances – including how to optimise your loan structure to pay the loan off quicker.
Understanding how much you can borrow involves looking at your whole financial picture. Things like your income, expenses, deposit, and the current interest rates all come into play. Our team at Threefold is here to guide you through this process and help you reach your homeownership dreams.
We offer expert advice and support to guide you through the mortgage process and help you achieve your homeownership dreams. Contact us today by clicking here to book a free consultation to explore your options.
The content of this article should not be taken as financial advice, or a recommendation of any financial product. Threefold is not liable or responsible for any information, omissions, or errors present. We recommend seeking advice from a qualified financial adviser before taking any action.