It’s mayhem for borrowers out there.

Debt-to-income ratios (DTIs), the Responsible Lending Code (CCCFA) and hiking interest rates are all causing issues for borrowers.

In all honesty, it’s causing mayhem for the banks as well, because these changes to lending policy are, in a lot of cases, enforced by the regulator, and the banks are simply doing what they’re told.

Let’s ignore interest rate increases for now. That’s for another day. Here’s the problem.

Rigid bank lending rules – specifically due to the lending code – are being clenched to the extreme, and I believe it’s gone beyond a reasonable level.

Changes to the Responsible Lending Code came into effect on 1 December, tightening the rules banks must play by when considering if you’re fit for a mortgage.

This means that banks need to prove, more than ever, that the person borrowing from them can afford to.

Fair enough. That seems responsible to me and, in its simplest form, I support that change. But not what’s happening now.

Before the changes, when if you were applying for lending, you’d have to declare a rough overview of monthly living expenses, which would be accompanied by bank statements.

As long as your spending was realistic, chances are you’d be fine.

However, across the board banks now run your bank statements through software that scans every line, working out an average of what is spent in absolutely every aspect of your life.

It’s judging you on how you spend your nights and weekends, how often you buy takeout coffee, and whether you shop at Pak ‘N Save or New World. You get the idea.

Those of you who put comical references into your transaction details when you’re transferring money to friends might want to stop … that’s the level of detail the banks are now going to when they work out how you spend your money.

It’s my strong view that these changes will be wound back a bit when the bankers at the top realise that productivity through their business has gone through the floor, but for now, it’s having a big impact.

So, you should know some ways to deal with it. Think about these borrowing strategies before you apply.

Keep your accounts squeaky clean

When you apply for lending, the bank will ask you for three months’ worth of bank statements from your accounts.

So, the most obvious thing to do before you apply is to focus on your account conduct and keep really good habits.

This doesn’t mean eating baked beans and being a hermit crab for three months, but it does mean keeping things tight.

Live as if you already have a mortgage

Think about how much that lending is going to cost you and then add things like rates, insurance, and potential maintenance costs.

Take that amount (less your current rent) and put it into a savings account so you can clearly show the bank you can afford the lending.

If you want to be really clever, work out that mortgage cost based on the bank’s test rate (6 per cent to 7 per cent), rather than actual rates.

Pause those subscriptions

Then have a look at all those subscriptions that you forgot you even had. Are there any that you can live without?

Do you really need them all – Netflix, Sky, Neon, Amazon, Spark Sport and Disney+? These subscriptions add up pretty quickly, and the banks now count every single one of them.

You can always resume binge-watching after you get the tick from your lender.

Pay now, not later

It’s also worth stopping Afterpay for a few months.

Do buy something if you really want it. But buy it only if you can afford it now, rather than borrowing from the future.

Your Afterpay limit will need to be disclosed to the bank and carrying a balance suggests that you’re living beyond your means.

You’re not alone

Don’t feel that your bank is picking on you. This new level of scrutiny is affecting everyone’s attempts to get a mortgage, from both sides of the pay scale.

This isn’t unique to low-income earners, by the way.

Even someone who could comfortably afford the mortgage, like someone earning NZ$400,000, is being turned away because in the bank’s eyes – they can’t afford it.

The good news is that borrowing hasn’t completely halted. The banks are still lending, and they will continue to do so.

As a borrower, though, you need to be aware of what they’re looking for and work out what to do to put you in the best possible position.

These changes will make this year really interesting to watch (that’s an overly positive way to put how I really feel).

However, my view remains firmly that the regulators have gone too far, and I’m optimistic that common sense will prevail.