Kathy's Blog

Keeping up to date with Finance

Finance update New Zealand

"The banks all seem to have a different appetite and willingness for lending in the current market.

For example, a recent client wanted to refinance an existing property which had a private loan at a higher interest rate in place. I approached their existing bank and asked for the $80,000 to refinance which was 57% LVR. This was with good financials and as such it should have ‘flown’ through the system.

To my surprise it was declined since the bank in question does not really want to do any refinancing, only new purchases. This applies even to existing clients with proven loan history and good financials.

The deal was taken to another mainstream bank who very quickly provided 70% (without valuation) giving the client $144,000 which meant a surplus to requirements and a deposit for another property. No questions asked.

This bank also gave $500 toward legal fees and no application fee while their own one would have charged a $250 application and not given anything toward legals. The bank that approved the loan is in the market to increase their loan book and while they are still cautious their lending parameters are much more flexible.

95% funding available on Owner occupied

I now also have access to 95% lending from a main bank on owner occupied properties plus 80% LVR from several funders for investment property. Some application fees may apply although the interest is at normal market rates.

Rent to Buy or Lease Option properties

Mainstream banks shy away from rent to buys, alternatively known as Lease Option properties. However, there is now a prominent funder who has been in the market from prior to the recession and still very much in business, who will consider these kinds of applications.

This funder will use the current RV (done by one of their panel valuers). They will lend up to 80% to the ‘tenant buyer’ providing there is 20% equity in the property regardless of the purchase price.

In other words, the difference between what the buyer owes the investor and the current valuation, must be at least 20%.  In addition, to this, the borrower needs to be able to prove income for this option to be considered. Credit issues are not a problem they just mean that the tenant buyer will pay a higher interest rate initially.

Once they are on the title and have a good 6 month loan history they can then be taken to a mainstream bank, depending on their credit record. The loan with the initial funder is a standard 25 year loan but the interest rates are a little higher depending on the quality of the applicant.

Offshore borrowers

One of the main banks currently will not accept any POA’s (Power of Attorneys) from new clients (to the bank) wanting to borrow from offshore. I recently had an application approved with a registered POA which had been used effectively for the past 5 years in regard to property purchases. The wife lives in NZ but the husband is away for extensive periods at a time.

The bank is insisting that if they want the loan that the husband flies to NZ to open the account and sign the loan docs. Due to the pressures of his particular job this is not possible. I have challenged the decision with the credit department but they are adamant that this rule will not be waived under any circumstances. If the client is already a customer with the bank then they will allow a POA. Evidently there is a good reason for them not to use POA’s due to lending done for offshore clients in several instances. Other banks don’t have an issue.

The good news is that there are several main stream lenders happy to lend to offshore clients, particularly from Australia. If your income is derived from countries other than Aussie that may vary a little. One funder insists that the offshore borrower has at least $75,000 of their own funds in the property or 70% whichever is the greater. Another funder still won’t do any lending for offshore investors.

Asset Lend and Self Certified Products

There are several non bank lenders coming back into the market offering both No Doc (Asset Lend) and Lo doc (Self certified)  products.

The Asset lend product goes up to 65% LVR and the self certified product goes up to 75%. LVR Asset lend/ No Doc means that no income needs to be declared at all. This is typically a 6 month lend with an option to roll it over.

Self certified/ Lo Doc means you need to state an income sufficient to service the loan. No proof of income is required although the lender may check the bank accounts to see that the amount of income being deposited will be approximately as stated. No formal Financials are needed. This is a standard 25 year term mortgage which can be refinanced at any stage.

Both these facilities are only for properties in the main areas within NZ and exclude apartments, multiple income streams on 1 title, boarding houses etc. Interest rates depend on the credit check for the borrowers.

The advantage of this kind of lending, particularly for investors who may not currently be able to prove income is that they can take advantage of good prices in the current market. Their incomes may be less than usual due to the recession or other circumstances.

For instance one client has recently had to restructure and rebuild his business and does not therefore qualify with the main stream banks. If he secures a property in this market and ones the income increases then refinances at a better interest rate then the difference between the purchase price and what he pays in interest is still very much to his advantage.

This is the same for people on lower declared incomes, and therefore paying less tax. They can still invest or buy a home for themselves. The savings they make on tax payments can go toward the interest payments and they are no worse off while being able to get a good purchase price.

This product is also ideal for property traders wanting to renovate and flick the property. It’s a great opportunity to take advantage of good market prices.

Pre approvals

A very good strategy is to have one in place so that you can act more quickly to obtain a good purchase price. They are typically valid for 3 months although one bank has them valid for 5 months. The borrower does need to provide an indicative purchase price and expected rental income to base the pre approval on unless it’s for an owner occupied property.

Providing all the information is provided that the bank needs to make a lending offer then approvals are offered within 2 days to a week. A couple of the non bank lenders only use their panel valuers which does slow the process a bit after purchase.

Interest Rates

Main stream long term interest rates have still been reducing and the floating is stable at present. No one seems to have a clear picture although there is the expectation that the OCR will increase by a min of 50 basis points over the next year.

If you have any queries regarding your personal borrowing ability then please contact tina.webb@loanmarket.co.nz”

Thank you Tina for some informative insights into the current mortgage, financial market.

 So when one lender says no, go to the next lender and ideally don’t give up if you know the deal is right for you. To help you get this process right use a good mortgage broker.

I have been travelling in China and Singapore and learning about their property markets and of course comparing them to New Zealand.  So next month I will share the benefits and many reasons for investing in New Zealand.

Kathy Engelbrecht
http://www.houses4you.co.nz/

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