Five changes the industry is excited about
With inflation back in the target range and interest rates on the way down, mortgage advisers are looking to 2025 with renewed confidence - and say that borrowers are too.
Housing market activity is increasing, red tape around lending rules is loosening, housing market activity is heating up, and mortgage interest deductibility is to be fully restored from April 1.
But there are a few areas the industry has on watch. The Finance and Mortgage Advisers Association of New Zealand (FAMNZ) is working on a pathway to create unity across lenders, the Commerce Commission and the Financial Markets Authority and says that fixing this is essential.
As 2024 draws to a close, NZ Adviser spoke to six industry leaders and advisers to get their views on what they’re looking forward to in 2025 and the benefits for both advisers and borrowers.
1. Lower mortgage interest rates
The official cash rate was cut by 1.25% in the second half of this year and Reserve Bank November forecasts indicate that the wholesale rate will drop below 4% in mid-2025.
Kiwibank is forecasting an equivalent portion of cuts to come. Economists in the Kiwibank weekly update published on December 16 said that continued cutting was justified by “low and stable inflation around 2%”.
Elyce Peters (pictured top left) managing director at The Mortgage Girls, referred to the potential for lower mortgage interest rates as a “massive win” for advisers and borrowers.
Peters anticipates that further downward moves in mortgage rates would represent an increase in business for the industry, as homebuyers explore options to enter the property market and existing mortgage holders refinance and/or get advice on their loan structure.
“Lower rates ease the financial squeeze on households and, paired with improving affordability, could be the spark that gets home buyers back in the game,” she said.
Jeff Royle (pictured top centre), financial adviser at iLender said that 1.25% of rate cuts delivered this year and indications of more to come had rebuilt confidence that had been lacking over the last couple of years.
“First home buyers have been back with the relaxation in high LVR borrowing and with stress test rates in the mid 7% range, they can borrow what they need at a price that’s affordable,” he said.
Eugene Bartsaikin (pictured top right), director and mortgage adviser at Twine Financial Advisers, said reductions in mortgage stress test rates would “vastly improve” borrowing power.
“Banks are continually revising their lending policies so 2025 will be the year where activity picks up across the board,” he said.
2. Mortgage interest deductibility restored
The mortgage industry considers the restoration of mortgage interest deductibility on rental properties as hugely positive and a “reversion to norm.”
From the tax year commencing on April 1, 2025, property investors will once again have the ability to claim 100% of mortgage interest as an expense, up from 80% in the current tax year.
John Moody (pictured bottom left) said that there had been clear signals from the current Government that regulation would become more friendly toward investors.
“We think advisers will see significantly more enquiry from ‘buy and hold’ investors and property traders alike,” he said.
Moody said that Basecorp had already encountered an increase in enquiry from these buyer groups, noting that while lower interest rates were a primary driver, the Government had moved to remove a number of policies considered to be unfriendly to landlords.
This also included the reintroduction of the 90-day ‘no cause’ terminations for periodic tenancies under the Residential Tenancies Amendment Bill, passed into law in December and effective from January 30, and the reduction of the brightline test to two years, effective from July 1.
The return of loan-to-value (LVR) speed limits (70% for investors) would also incentivise demand, particularly while the market remains unaffected by debt-to-income (DTI) ratios, he said.
“When these initiatives are coupled with continued reductions in interest rates and increased confidence from investors of property price gains in 2025 as stock levels decline, we think advisers should be excited about the year ahead for their investor customers,” Moody said.
Bartsaikin said that full restoration of mortgage interest deductibility rules meant that investors did not need to come up with the money to pay taxes on profits they did not make and vastly improved “the feasibility and affordability” of sustaining an investment property.
3. Credit Contracts and Consumer Finance Act (CCCFA) reforms
Changes to the Credit Contracts and Consumer Finance Act (CCCFA) introduced in December 2021 put greater onus on lenders to ensure loans were suitable and affordable. The changes were reported to have increased processing times and adversely impacted some borrowers.
In response to questions from NZ Adviser, Commerce and Consumer Affairs Minister Andrew Bayly said that the central focus of CCCFA reforms was to make it easier for people to access credit and get a mortgage to buy a home.
Changes had also been made to help remove unnecessary compliance costs, which would make it easier for people to take out smaller loans, he said.
“We have made loan affordability requirements less strict and have reduced how prescriptive the checks on potential borrowers are,” Bayly said.
“This is already enabling lenders to relax their approach to processing less-risky loans and will also help ensure the process is less stressful and confusing for borrowers.”
To address any recurrences of poor lending practices, Bayly said the government had enhanced the financial dispute resolution system, with proposed changes requiring independent governance arrangements, standardised KPIs and the appointment of an independent reviewer of financial dispute schemes.
“I have also agreed to transfer responsibility for the CCCFA from the Commerce Commission to the Financial Markets Authority and intend to introduce a Bill to the House early in 2025 to give effect to these changes,” Bayly said.
Royle said that the ongoing relaxation of the CCCFA was positive for advisers and borrowers, as the changes support fair assessment of applicants and would encourage growth in the mortgage lending space.
4. Increased housing market activity
According to REINZ, nationwide property sales rose by 10.8% in the year to November.
REINZ chief executive Jen Baird said in the organisation’s November report that there had been a “shift in market sentiment” and that after a challenging year, recent data indicated “promising signs of increased activity.”
Peters said that a busier housing market meant “more action” for buyers, sellers and advisers, noting that advisers were responsible for helping borrowers navigate these opportunities.
Nathan Miglani (pictured bottom centre), director and mortgage adviser at NZ Mortgages, said that the return of interest deductibility for investors was one of the most significant changes this year, driving renewed interest in property. Lower interest rates were also bringing in buyers, he said.
“While bank approval times are currently slow as we approach Christmas, this is typical for the season as buyers rush to finalise deals,” Miglani said.
“We’re optimistic that 2025 will bring smoother processes, increased stock, and an even more vibrant market.”
5. Increase in housing stock
The Resource Management Amendment Bill has five categories, including proposed changes to housing, as part of reforms to the resource management system.
Phase two includes the Fast Track Approvals Bill, which aims to speed up the consenting process for major projects. There are 149 regional and national projects selected, including 44 housing developments. The Bill passed its third reading on December 17 and applications would be considered from February 7, 2025.
Miglani said that changes made by the Government should help property stock to rise and give Councils the ability to better manage zoning plans for housing developments.
What to watch in 2025
Leigh Hodgetts (pictured bottom right), country manager at the Finance and Mortgage Advisers Association (FAMNZ) said that the member organisation viewed 2025 as a “watershed year” for the mortgage industry.
“There must be greater cohesion within the sector and FAMNZ is determined to be a strong voice for all mortgage advisers,” she said.
“It is clear that lenders, the Commerce Commission and FMA are not on the same page and fixing this is essential for finance and mortgage advisers and consumers.”
Hodgetts said that FAMNZ had been asked by the Commerce Commission to work on a pathway forward, which the organisation would do in consultation with members and other industry stakeholders.
Next year provides the opportunity for advisers to get involved and make a difference, such as being proactive about further regulatory burdens, she said.
“Mortgage advisers and borrowers will enormously benefit from a smooth adaptation of the recommendations the Commerce Commission has made,” Hodgetts said.
“We may not agree on everything, but we are in favour of promoting more choice for home loans and driving competition in the sector.”
Having met with banks to discuss improvements to speed up the loan approval process, FAMNZ wants to see greater transparency of interest rates and pricing, which would help mortgage advisers navigate the best outcomes for borrowers.
“Our hope is that 2025 will be a year of great progress and advancement for our industry, but it won’t come without all of us coming together and making it happen,” Hodgetts said.
Moody said that Basecorp continued to remain focused on ensuring it had funding capacity to accommodate additional demand, while Miglani said that with CCCFA changes embedded and The Fast Track Approvals Bill, along with other changes on the horizon, made heading into 2025 an exciting time for advisers and borrowers.
