Do you have a mortgage and would like to top it up to fund a big-ticket item, like a new car, a holiday, or a renovation? Or perhaps, you’re looking for a home loan to buy your first property? This guide is for you.

The new consumer credit changes, coming into effect on 1 December (originally 1 October), are likely to make mortgage top-ups more difficult, and they could also affect new mortgages for some buyers. So, here are some key things to know.

A more individual assessment

The new regulations coming into force in December include an express list of enquiries a lender or financial adviser needs to ask, to establish that a loan is suitable and affordable for a borrower, based on their income and expenses (including benchmarking in some cases). 

Similar systems and controls were already in place, of course, but they have now become even more prescriptive. Both lenders and advisers – like us – must comply with these rules and ensure that the borrower’s ability to repay the mortgage meets the minimum standards. Essentially, mortgage approvals move from a ‘formula approach’ to a more individual assessment. 

What it means for new borrowers

Up until now, consumers applying for a new mortgage or a top-up loan were essentially asked to provide a list of their expenses (including any debt repayments) which would then be assessed by the lender to determine the borrowers’ ability to repay the loan. 

In other words, lenders have already been applying a broad set of criteria to assess mortgage applications as part of their responsible lending obligations. But with the new changes, there’s a new level of disclosure involved, and lenders will take a much closer and more detailed look at borrowers’ spending habits. 

If you’re a first-home buyer and would like to learn more about this, please get in touch. We can undertake a pre-assessment of your borrowing capacity, and help you identify where you stand. 

How are mortgage top-ups affected?

The new changes are also likely to affect homeowners who are looking at using their mortgages for consumer debt. With house prices rising, it’s not unusual for mortgage holders to top up their loan and use the funds to purchase a car, renovate their home, and even book a holiday. 

The new changes, however, will help ensure that the use of this tool doesn’t put borrowers in a worse financial position. Going forward, lenders will request more information and documentation. For example, if a borrower wants to use the funds to cover a new kitchen or bathroom, the lender may ask to see quotes, and only lend the quoted amount. 

Plus, the lender might add conditions to a top-up approval, like requiring that the new portion of the loan be paid off within three or five years. This will help avoid common scenarios where the extra debt hangs around for many years or even decades, leading to higher interest costs over time. 

Have questions?

Get in touch – as mortgage advisers, we can help you understand if and how these changes may affect your plans, and help find the appropriate path forward.



Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.