• Welcome to Apogee Legal’s monthly column, where we demystify legal concepts and provide you with knowledge on navigating the legal side of life. This month, senior lawyer Sarah Wilson talks about law changes property buyers need to know about.

IT'S been quite the ride for property over the past few years as the housing market skyrocketed then lurched back towards Earth. Alongside this, property-related legislation underwent significant change.

With a new Government in place, we are now seeing several “old rules” re-established, with some new ones added.

Here are some of the key changes set to impact property buyers and sellers.

1. Introduction of debt-to-income (DTI) limits for home loans

The Reserve Bank has implemented new DTI restrictions for home loans, aiming to support New Zealand’s financial stability by limiting higher-risk lending.

A DTI ratio is determined by dividing a homeowner’s total debt by their total gross income.

What’s changed?

From July 21, 2024 banks are required to consider your DTI ratio when you apply for a home loan.

Banks will also take into account other lending regulations and their own criteria when deciding whether to lend to someone and how much they can borrow.

2. Interest deductibility returned for rental properties

Prior to 2021, rental property owners were able to able to claim the interest they paid on their mortgages as a business expense for tax purposes. However, in October 2021, the “Property Interest Limitation Rule” was introduced.

This meant that for residential rental properties acquired on or after March 27, 2021, interest could no longer be claimed (unless an exclusion or exemption applied).

For rental properties acquired before that date, interest deductibility was being phased out.

What’s changed?

As of  April 1, 2024, rental property owners are able to claim 80 percent of their interest expenses. On April 1, 2025, this will increase to 100 percent.

3. Bright-line property rule wound back to two years

The Bright-line Property Rule was originally introduced in 2015. This tax rule looks at the length of time a property is owned to determine whether the owner may have to pay income tax on any gain made on the sale. The rule does not apply if the property is your main home.

In an effort to cool the housing market, in 2021 the Bright-line period was extended to 10 years for residential property acquired on or after March 27, 2021 (and five years for qualifying new builds).

What’s changed?

Effective July 1, 2024, the Bright-line period was reduced to two years. This means that properties sold on or after July 1, 2024 will only be subject to the rule if owned for less than two years.

4. First Home Grants discontinued

The First Home Grant scheme (administered by Kāinga Ora) gave a first home buyer who met certain criteria a grant of up to $5,000 towards an existing home or up to $10,000 for a new home.

What’s changed?

The Government has now discontinued the scheme.

Although we can’t predict what’s next for the property market, one thing is certain: if you are considering buying or selling any property, thorough due diligence is essential.

This means having discussions with your accountant and lawyer to fully grasp the tax implications and legal requirements that apply to your situation and the property you’re interested in purchasing.

It’s highly recommended you reach out to your professional advisers early in the process.