There are a number of factors that have recently converged to change the borrowing landscape, ultimately making it harder for people to obtain a mortgage. These changes make using a good mortgage broker more relevant than ever.
Here are some quick facts about the current mortgage landscape:
Interest rates are on the rise
Reserve bank LVR restrictions are making it harder for first home buyers and property investors
Servicing margins increased to ensure future affordability
Non-resident borrowers shut out of the New Zealand market
At last, it has happened; interest rates are unquestionably on the rise.
Short term rates have risen to nearly 5%, compared to around the 4.40% rates that were available in the middle of 2016 with some special 2-year rates still available to qualifying customers at around 4.50%, compared to 4.10% or in some cases 3.99% rates in early 2016.
At the end of the fixed rate scale, 5-year rates are now heading toward 6%.
These rates are still comparatively low compared to the average over the last 10 years, but it does mean that mortgage holders will have to budget for an increase in payments when they next fix their mortgage.
LVR Restrictions hitting property investors.
We are now getting used to the fact that there is very little availability of funding for people who do not have a 20% deposit when buying a house due to the LVR restrictions imposed by the Reserve Bank, which has had a big effect on first home buyers, as well as investors.
Investors can now borrow no more than 60% of the purchase price of a rental property, effectively meaning that some people no longer have enough equity in their home to be able to buy an investment property. Other people who have more equity can still buy an investment property but are limited to one worth half as much as they would previously have been able to buy under the old rules.
Interest only loans are also harder to get for property investors, with a lot of lenders restricting the interest only period to less than 5 years.
Due to the requirement for lenders to hold more liquidity to offset investment property loans, most banks are not as keen to take on this sort of lending and are also charging higher interest rates for some investment loans.
Servicing margins rising
Even though mortgage customers have been paying typically 4 – 4.5% for fixed mortgages and around 5% for floating, the bank uses a much higher ‘test rate’ when working out whether the customer can afford the loan. This test rate or ‘servicing margin’ is there to ensure affordability over the long term when rates will inevitably rise. The test rate in use by most lenders has been slowly increased over the last year or so and this week increased to 7.8% making it harder for some customers to qualify for a mortgage.
Non-residents shut out of New Zealand market
Recently a client of mine had been unable to obtain finance for the purchase of a property in New Zealand. This client has New Zealand citizenship, however, are currently residing overseas, have more than half of the purchase price of a modern townhouse in cash and the rent from the property would more than service the mortgage and other costs meaning that there would be no reliance on their overseas income to service the debt. The lending rules for non-residents have tightened up, however, so much so that none of the main banks will even consider an application.
In this instance, I was able to able to help my client by going to a non-bank lender and others who have also been able turned down after first approaching their own bank. It’s so important to consult with a mortgage adviser who can prepare a professional mortgage application on behalf of the client. Mortgage brokers know the lending marketplace and can find the most appropriate lender to suit the client’s situation and the current market landscape.
If you are thinking of buying or selling any property or would like a review of your mortgages please contact me today.