1 July 2024 Property Changes – how this might affect you as a buyer or seller

Debt to Income

Effective 1 July 2024, the Reserve Bank of New Zealand is enforcing new debt to income (DTI) rules that limit how much you can borrow to purchase residential property. The new DTI rules are based on household income.

For those individuals purchasing an owner-occupied property, the new lending threshold is six (6) times your income. For investors, it is seven (7) times your income. It is important to note that the new rules only apply to existing properties – so if you are purchasing a section to build on, the DTI rules will not apply. 

When completing your financial due diligence ahead of purchasing a property, it is important to determine your lending capacity as these new rules may directly influence your ability to purchase property.

Income is calculated as your gross income or business net profit and includes any gross rental income you may receive. Debt is all current debt such as personal loans, vehicles, student loans or existing home loans. The bank will look at these income and debt figures to determine how much you can borrow.

We recommend you discuss how the new DTI rules impact you with your bank or a mortgage broker early in the process of finding a property. 

Bright-line update

Changes to the bright-line property rule take effect on 1 July 2024 to those who are selling their property following changes announced by the New Zealand Government. 

Rather than the previous 5 year (for new builds) and 10 year bright-line periods applying, every property will be subject to a two year bright-line test. As such, any property purchased before 1 July 2022 will no longer be subject to the bright-line rule because as at 1 July 2024 all sales will occur at least two years after the date of purchase, and you will not be required to pay tax on any profit made.

If you have contracted to sell a property prior to 1 July 2024, but complete settlement after 1 July 2024, you may still be captured within the 5 year or 10 year bright-line test, whichever applies.

The bright-line rule exemptions continue to apply to main homes, business premises and farmland. For a property to qualify as your main home, you must use more than 50% of the property as your main home for more than 50% of the time that you have owned it. There are other exemptions that apply such as dealing with an estate, division of relationship property or transferring to an associated party.

If you are unclear whether the bright-line rule applies to your situation, we recommend that you get in touch with a solicitor, and your accountant, before selling your property.

If you are looking to sell or buy a property and have any questions about these changes, or if you are unclear what applies to your situation, our expert Property Team who assist you to navigate these changes. Contact us on [email protected] or 03 441 2743.