Debt is a bigger obstacle to first home ownership than housing supply

Getting rid of debt should be a greater priority than saving for a house deposit, says longstanding Auckland mortgage adviser Christine Lockie.

The director of LoanPlan Limited, Ms Lockie said today she has seen a sharp rise in inquiries from first home buyers in recent months.

“The greater optimism is partly because people are encouraged by a cooling in the housing market and moves by the Government to ban foreign buyers. However, supply is only part of the problem.

“A bigger goal for people wanting to get mortgage finance is to forget about saving for a deposit right now and get rid of your debt first.”

Ms Lockie said mainstream banks are still tough on approvals because the Responsible Lending Code, loan to value ratios (LVRs) and the Credit Contracts and Consumer Finance Act require it of them.

“While I was not surprised to see outgoing Reserve Bank official Grant Spencer warning that LVR restrictions are here to stay, I was even less so by his call to add debt to income (DTI) to the Reserve banks toolkit.

“Your levels of debt, and types of debt – like credit cards and hire purchase payments – aren’t just a ratio or a box that needs to be ticked; they’re a window on your lifestyle, your attitude to money and your financial discipline, or lack thereof. Your debt tells the bank how big a risk you are.”

Ms Lockie said the aim of finance regulators is not to get people into housing, it is to prevent financial risk to both borrowers and lenders.

“It’s a question of affordability, not supply, when it comes to getting first time home buyers into property. The right of every Kiwi to own a home is secondary to their ability to service their debt responsibly, and unless the Government comes up with some very creative solutions, I don’t see anything changing.

“In fact, I think debt is going to become more and more of an issue. Our levels of consumer debt have continued to rise since the GFC to the point where it is becoming a real obstacle to home ownership.”

For more information visit www.loanplan.co.nz

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