Credit card debt not good for first-home buyers, lender

by NZ Adviser15 Dec 2017
First-home buyers looking to get a foot on the property ladder in the New Year would be well advised to avoid turning to credit cards to pay for Christmas expenses, Mike Pero Mortgages says.

Number-crunching by Mike Pero Mortgages has found that a couple with a joint income of $130,000 seeking a home loan would have their borrowing power slashed significantly just by having a credit card.

It put the same application through each of the banks on its panel of lenders to find out the impact different credit card limits have on borrowing power, the results were:
Credit Card
$5,000 $10,000 $15,000 $20,000 $25,000
Reduction in Borrowing Power -$28,000 -$47,000 -$80,000 -$97,000 -$120,000

Mike Pero Mortgages chief executive Mark Collins said: “That’s not the total owing on a credit card – that’s just the impact of having one.

“Many first home buyers tend to think it’s okay to have credit cards as long as they don’t ever draw down on them.

“That’s not how the banks look at it. They have to consider that at any point you could draw down on the full amount, so they look at future potential credit card debt when calculating serviceability, rather than just the amount owing.

“Although there will be a relaxing of lending restrictions next year, the fact remains banks are still taking a very conservative approach to loan serviceability,” said Mr Collins.

People planning to seek mortgage borrowing in the New Year could help their cause by paying off credit cards and then getting rid of them completely.

“The plastic tends to get a workout leading up to Christmas and over New Year, so our advice is to be very wary of taking on too much credit card debt.

“Getting rid of credit cards can make a huge difference to the amount you can borrow. For example, when a credit card with a limit of $10,000 can affect your borrowing power by nearly $50,000, that could be the difference between getting the property of your dreams, or missing out completely,” Collins added.

Those that think their credit limit may impact their ability to purchase property should seek the advice of a mortgage broker, said Mr Collins.

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