The proposed changes are to come in to effect on the 1st of September but it's important to note that all of the major banks have changed their internal policies to reflect the proposed changes to be enforced by the Reserve Bank.
The changes are fairly simple... As of 1st October the minimum deposit required when purchasing an investment property is 40%. Regardless of where you are in NZ.
There had previously been a requirement to have 30% deposit if you were buying in Auckland.
There has been no change to the deposit requirements for purchasing an owner occupied house. The banks can still lending 80% for these with exceptions where they will lend up to 90%. If you're unsure what deposit you require just get in touch with us and we'll give you advice tailored to your personal situation.
If you own existing rental properties then it's important to note that this will effect any future purchase you make. Even if it is for your own home. For example if you had 25% equity across 3 properties and you sold your own home top buy another house for you to live in, the bank would lend you up to 80% on that house, but would require you to have 40% equity in your two rental properties.
How will the bank establish your property values? That is probably another blog post altogether as there are options around desktop valuations, rating valuations and registered valuations depending on your personal circumstances. We can advise before you make a decision to ensure you have all of the information you need.
As always, we've got a few work arounds
- It is only Banks that have to adhere to these changes. We've got about 5 non bank lenders who will lending up to 80% of the value on investment properties because they are not bound by the Reserve Bank rules. The cost of borrowing is often up to 1% higher than with mainstream banks but considering how low interest rates are now this may be worth looking at.
- These rules do not apply when refinancing lending. We could use this to the advantage when shifting your lending to a new bank, or to use a second tier lender in the short term to achieve your investment and then switching to a main bank to get better interest rates
- The new do not apply to a brand new house being constructed. Therefore if you were to build a brand new rental property you may be able to do so with as little as 20% deposit.
- Bridging Finance - Be careful of getting trapped when selling/buying. We have options to ensure you're not subject to these rules if this is you.
In summary it's not the best news for investors who are looking to leverage their properties to buy more but with the recent gains in values and our team always working to find the best way around these new rules we can certainly provide some advice to ensure you are making the best decisions for you.
Get in touch with the team today to discuss your future plans with rental properties so that you can make an informed decision.
We'll keep you posted if there are any further changes
Adam, Claire and the My Mortgage Team