You have taken the first step in the mortgage process. You have decided that you now wish to stop paying rent & start paying towards your own home. Well done!
Residential mortgages in New Zealand are available through all the trading banks & non – bank lenders. Each bank & lender has qualifying criteria that is different. There is a range of residential mortgage products available in New Zealand through these lenders. Which lender & product is the right one for you?
If you have New Zealand residency or are a New Zealand Citizen , you may qualify to apply for a standard residential mortgage. If you are in New Zealand on a work permit or work visa,you could qualify for a standard residential mortgage but under a different set of criteria.If you are a visitor to New Zealand or an overseas investor, you may still qualify for a residential mortgage under an other set of lending criteria.
New Zealand residents & citizens( and Australian citizens as well) are normally able to obtain a residential mortgage for up to 80% of the purchase price of a residential property. In exceptional circumstances, banks & lenders even lend up to 95% of the purchase price of a residential property. If you are in New Zealand on a work permit or visa , you may need to contribute a little extra by way of your initial deposit on the property.
Most banks & lenders will lend up to 80% of the purchase price of your first residential property in New Zealand provided you meet their criteria. Your mortgage can be for a term up to 30 years to start with.
The market has changed a lot and is still changing. Lending criteria is different with different lenders. There are a lot of conditions to look out for with lenders.It is therefore important to talk to a mortgage adviser who understand the lending criteria for different lenders and is able to obtain the appropriate loan solution for you.
There have been times when our clients have gone ahead with the property selection/buying process before a pre-approval has been obtained.This has happened because their bank has verbally informed them that they would qualify to borrow a certain amount without assessing their situation.Based on the verbal assurance of their bank, they have reached the offer stage in the purchase process only to discover that they do not qualify (with their own bank) for the level of finance needed.
In the current market there is absolutely no point dealing with your bank directly because you can only get one solution.Talk to us about your situation & we shall arrange your preapproval before you commence your search for the family home.
Lenders are now stricter with lending over 80%. It is still possible if you have stable work history, good income, clean credit and no other debts. When borrowing below 80%, the lender may normally allow you to borrow up to 5 times your annual income. When borrowing above 80% you may normally be able to only borrow up to 4 times your annual income. This is because the lender may require you to pay-off any borrowing over 80% of your mortgage faster, thereby lowering your borrowing ability.
Borrowing over 80% in the current market comes at a cost. The cost will either be as an upfront fee charged by the lender (up to 2.5% of the mortgage value depending on how high the LVR is) or as a low equity premium added to your mortgage rate. With the upfront fee, the lender may give you the option of adding the fee to your mortgage. If the lender includes a low equity premium, this can range from 0.50% to 1.00% above standard mortgage rates. When you borrow above 80%, a registered valuation will be mandatory (cost $500+GST). You will also be well advised to take ongoing mortgage protection or income protection insurance cover,besides life insurance cover regardless of whether you borrow below or above 80%.
Would you like to speak to one of our financial advisers over the phone? Just submit your details and we’ll be in touch shortly. You can also email us if you would prefer.
Are you in business (Self Employed) or in a Contracted Role?
Being self-employed has its own financial challenges – especially when it comes to finding the right mortgage to suit your cash flow!
Some people may not easily be able to provide proof of their income including:
- Self employed people
- Commission income earners or Contractors
If you’re one of these people and borrowing up to 85% of a residential property’s value, talk to us. You’ll still need to prove your income and will need the following as proof of your self employment:
- Self employed customers – copies of full financial reports for your business for the last 2 financial years
- Commission earners or Contractors – evidence of your earnings for the last 2 financial years
We understand the needs of business people and will help you put together the information you need to get the best financing package, with a minimum of fuss.
To borrow over 80% you need to have been in your business for at least two years. You could be a contractor or managing your own business. If you are a Contractor and in an industry that extensively uses contractors then the lender may be flexible, but will still usually limit your borrowing at below 85%.Exceptions to this are rare currently.
It is becoming ever increasingly hard to convert property assets into cash because of the way kiwi banks are now assessing mortgage and loan applications against a stricter set of rules. Banks have slowly but surely tightened the reins on how they lend money and who to, so no matter how asset-rich you may be – if your income is not up to their standards, you may not be able to get a loan through the bank. It is a lot harder for a single person on a single income to gain a loan against a couple who are both working in well-paid jobs.
The advice here is simple, do not give up on the idea of gaining a loan through the bank. If you think your income is the main reason you are being denied a loan, despite having assets, then seek expert advice. Shop around for different banks and lenders and avoid doing anything drastic like switching jobs, moving, maxing out credit cards or anything else that could work against you. Eliminate debt as much as possible and put all your time into building up cash savings and maintain a good credit record, banks like to see someone who is steady and disciplined with their finances. The bank will not lend to anyone, of any salary type, who appear to be risk-takers with their money.
