What the new government means for borrowers

At the time of writing (13 Nov 2023), the coalition partners had yet to form a government so there’s every chance the property-related policy we end up with will be a watered-down version of what everyone was actually hoping for, irrespective of whether you voted blue, black or whatever colour Act is (are they light blue, yellow, or crimson? God only knows). Having said that, there are some things we do know if National is in the driving seat.

The first is that interest deductibility will be put back in.

Second, they will improve the CCCFA legislation (Credit Contracts and Consumer Finance Act).

Both these things will improve the amount of lending you can get for a rental property purchase.

Interest Deductibility

When you have a rental property, just like any business, there are a bunch of expenses you can deduct to lower your tax liability. They include rates, insurance, maintenance, and the like. You used to be able to count the interest on the mortgage you used to buy the property as a deductible expense, too, and it was (still is) the biggest expense a property owner has. Labour began phasing this out in late 2021, reducing the amount you could claim by 25% annually. During this period, property owners have been going from tax negative or neutral to tax positive which is generally bloody terrible for cash flow on a rental property.

But with National’s plan to phase interest deductibility back in rental property cashflow will improve, no question.

In my view, implementation probably won’t start until April next year at the earliest, and it won’t be an instant difference because it’s likely to be phased in just as it was phased out.

CCCFA Legislation Improvement

When the legislation was first put in place (back in December of 2022), there were many stories in the press about loans being declined because of every little bit of discretionary spending having to be factored into mortgage applications (remember the stories about people being denied because of their KFC habits?).

This is the CCCFA at work and it has absolutely had a material impact on people’s ability to borrow. It has certainly made our life much harder and many of you reading this now will remember how pedantic we’ve been when helping you with a mortgage. This legislation was the reason for that!

Anyway, National has said they will review and maybe repeal this stupid regime.

The thing is, there was such a backlash against the regime that by mid-2023 the former government made some tweaks and so the detail required was somewhat reigned in. I actually don’t see National scrapping this legislation and any changes they make will be around the edges of it. I recently discussed the CCFA Legislation with author Reweti Kohere, which is mentioned in The Law Association’s article here, and further information from the government’s perspective is included if you’re interested.

So now what?

The fact is that neither of these things will be implemented quickly. And even if they are their impact is more likely to be gradual. After all, there’s a much more important handbrake on your current borrowing capacity – high interest rates. Yes, interest rates are set to ease as inflation gets back to where the RBNZ wants it, but that’s a story for 2025 (or maybe late 2024).

My key message is not to get too excited about what a new government might bring. Perhaps it’s my years working in a banking environment, but I prefer to adopt a healthy dose of cynicism to government policy. More to the point, I’d encourage you to look closely at your numbers (why not get us to do that for you) before you tear into the open home circuit!