How Income, Expenses, and Debts Are Being Assessed by Lenders in 2025

March 28, 2025 at 2:08 PM

1. Income: Stability and Sustainability Are Key

Banks want to see that your income is reliable, consistent, and sufficient to cover loan repayments alongside your living costs. In 2025, here's what lenders are looking at:

  • Employment Type: Permanent full-time income is generally viewed more favourably than casual or contract work, though some banks are becoming more open to self-employed applicants with solid financial records.

  • Proof of Income: You’ll typically need the last 3 months of payslips and sometimes 12 months of IRD income history. If you're self-employed, expect to provide two years of financial statements or tax summaries.

  • Secondary Income: Rental income, boarder income, bonuses, and overtime may be included, but often at a discounted rate (e.g., 70-80%) to account for variability.

2. Expenses: Lenders Want a Realistic Picture

Since the CCCFA (Credit Contracts and Consumer Finance Act) changes, banks have taken a much more granular approach to everyday expenses.

  • Living Expenses: You’ll be asked to declare monthly costs such as groceries, utilities, transport, insurance, and childcare. Lenders compare your declared expenses with benchmarks to ensure they’re realistic.

  • Discretionary Spending: Subscriptions, dining out, entertainment, and lifestyle spending are scrutinised more than ever. While banks allow for some flexibility, consistently high spending patterns can affect your borrowing power.

  • Buffers and Stress Testing: Banks add a buffer to current interest rates when assessing affordability — for example, if the actual rate is 6.5%, they might test affordability at 8%+ to ensure you can cope with future rate rises.

3. Existing Debts: Less Is More

Your debt-to-income ratio (DTI) and existing financial obligations significantly impact how much you can borrow.

  • Credit Cards: Even if you don’t owe anything, banks often treat the limit as a potential debt. For instance, a $10,000 credit card might reduce your borrowing power by several thousand dollars.

  • Buy Now, Pay Later (BNPL): Services like Afterpay and Zip are seen as short-term liabilities. Frequent BNPL use may signal risky financial behaviour.

  • Personal Loans and Vehicle Finance: Regular repayments reduce surplus income, directly lowering the amount you're eligible to borrow.

How to Strengthen Your Application in 2025

✅ Track and Reduce Expenses: Use budgeting tools or apps to gain visibility and control over your spending.
✅ Limit Unnecessary Debt: Pay down personal loans or reduce credit card limits where possible.
✅ Keep Your Financial Records Clean: Avoid missed payments and maintain a strong credit score.
✅ Get Pre-Approved: Knowing what you can borrow gives you confidence when house-hunting.