Category Archives: Investment Properties

Mortgage for Investment Property

Can I get a mortgage for an investment property?

Can I buy an investment property?

Many clients have asked me “can I get a mortgage for an investment property”.  So you are not alone. If you’re wondering if you can buy an investment property, read on. Investment , rental or income properties are one of the most popular ways Kiwis choose to invest. We take a look at how to best approach getting a mortgage for an investment property in New Zealand.

What do lenders consider when assessing an application for an investment property mortgage?

The rules

When considering a mortgage application, lenders must follow the Responsible Lending Code rules. In addition, the Credit Contracts and Consumer Finance Act (CCCFA) had changes come into force in late 2021. The result is that lenders now have to seriously take into account applicants’ spending habits.

What’s the impact of CCCFA changes?

Previously, spending habits were only an issue if they were extreme; it was understood that most applicants would reduce their spending (e.g. by eating out less) to accommodate a new mortgage if necessary. Now, applicants need to produce at least three months’ worth of bank statements that show their spending habits don’t eat into what is needed to maintain a new mortgage.

This approach can be frustrating for applicants and may mean action needs to be taken before a successful application is made. It can help to remember that the intention is to ensure that consumers don’t become overextended financially. That being said, at the time of writing (January 2022) the government has indicated they will review CCCFA to make sure it is fit for purpose for property buyers.

The calculations

Lenders apply a number of calculations to decide whether to approve or decline an application for an investment property. This includes:

  • Calculating any current credit cards and overdraft debt by their limits, not actual amounts owed. They don’t take into account how you use these limits. So paying credit card balances off each month won’t improve this calculation.
  • Calculating whether the applicant could afford to pay the mortgage if interest rates increased. This is usually calculated at 6-7% interest per annum. They take into account any existing mortgages as well in this calculation.
  • Calculating the mortgage payments using a shorter period. Some banks require an investment mortgage to be paid off over a shorter period than owner occupied, e.g. over 25 years rather than 30 years. Applicants would need to be able to afford the resulting larger payments.
  • Scaling rental income. Banks scale rental income by approximately 65%-75% to allow for periods of vacancies between tenants and other costs such as rates and insurance.
  • Under new CCCFA rules, current spending habits will be used to calculate whether the applicant can afford to pay the mortgage payments.

Non-bank lenders can be more flexible with their parameters when calculating whether or not to approve an application. This is due to their risk profile and the higher interest rates they charge. In some cases they can be a great option if the banks say no. It all comes down to the circumstances of the individual, we work with both bank and non-bank lenders so can match you to the provider for you.

Mortgage for Investment Property

How much deposit do I need for an investment property?

It depends on the type of lender and the type of property being purchased. In addition, lenders are always adjusting their policies. Generally speaking you’ll need 40% to get a loan from a bank, whereas you often only need 20% when using a non-bank lender (there are additional costs with this option). New builds are exempt from LVR restrictions, so with the right property you can get a loan with 20% or even sometimes as low as 10% deposit.

Do I need cash for my deposit, or can I use equity?

Either! It’s also common to use a mixture of the two. Most people buying an investment property need to use at least some of their equity (i.e value in their current properties) towards their deposit.

How do I use my equity to purchase an investment property?

Your mortgage broker will manage this process for you. Depending on your options, you may need to decide whether you want to reuse the lender that has your current mortgage or to hold a separate mortgage with another lender.

When using equity for an investment it’s key to understand how the LVR limits impact you and which lenders or banks are going to be appropriate for your situation. This is where mortgage brokers get a chance to shine!

How can I improve my chances of getting an investment property mortgage?

Clean up your debt

As much as you can, pay off any “bad” debt. This means laybys, car loans, after pay debts and layby debt. As mentioned above, when it comes to credit cards and overdrafts, lenders look at the limits, not what is currently owed. Ideally cancel any credit cards and overdrafts, or if that’s not possible, get the limits reduced as much as possible.

The challenge of course is that paying down debt tends to eat away at your deposit. It can be a balancing act for which you need advice specific to your circumstances. As always, talk to a mortgage broker.

Establish healthy spending habits

As advised above, lenders now have put a lot more weight on applicants’ spending habits when assessing a mortgage application. Review your spending habits and make a plan to reduce where necessary. Go for at least three months under your new spending regime before applying in order to have proof of changed habits.

Maximise your income

If you have any investment properties already, and you’re in a position to review the rents, make sure the rents are in line with the market.

If you’re employed and feeling brave, ask for a pay rise! A pay rise of just a couple of dollars an hour will give you the ability to borrow tens of thousands more.

Maximise your equity

Review the value of any current properties. They may have gone up in value considerably since they were last evaluated. This would dramatically increase the amount of equity you could borrow against.

Look for investment properties that lenders will approve

This means you want positive cashflow properties; i.e properties where the rental income is higher than the mortgage and expense costs.

Look for properties where you can borrow less and then add value by renovating. This will grow both the capital and the rental income. Or, look at buying a new build, which would give you the benefit of tax exemptions. The changes to the resource management rules is expected to result in a lot more new build opportunities in areas that are in need of more housing.

Remember you’re looking for an investment property, not a home for yourself. This could mean you buy in location nowhere near where you live, and a property that you wouldn’t be interested in for yourself.

As always, the best first step is to get in touch with a mortgage broker. We can assess your current situation and advise you of your options.

Contact us today!

5 Reasons an Income Property Is a Great Investment

I was asked whether there is any reason an income property is a great investment? While there are endless ways of investing your money in this modern-day age, you need to ensure you choose what is right for you. Historic trends indicate that owning an investment/income property is one of the safest and most secure methods for growing your money. 

The average rental price in Auckland continues to climb. The annual return you will gain from rent income will likely be higher than a bank can offer you in a term deposit. It’s also important to get the bigger picture of what income property investment means, and the numerous ways it can provide you with a solution for wisely investing your money. 

To better understand what the property market has to offer you and your money, we’ve listed the top 5 reasons why a rental property is a sensible investment for you.

1. Passive Income

An income property offers you the peace of mind of knowing that your money is locked into a secure investment. Once your mortgage’s outstanding balance is low enough, your cash flow will turn positive, generating you a passive income.

Our Financial Advisers / Mortgage Brokers are happy to chat with you about your unique financial situation. We’ll let you know whether an investment property and the rental payments it generates, are a good solution for you and your circumstances.

2. High Return On Investment

5 Reasons an Income Property Is a Great Investment

House prices tend to rise over time, especially due to inflation and a greater demand for housing than available supply. As a result, the correct investment property can deliver a significant return on your investment – especially if you choose the right neighbourhood.

Investing in real estate to make money is one of the simplest and most flexible ways to secure your finances. You’ll have the option of selling your asset when you’re ready, or renovating your property to increase its worth.

3. Low Risk Investment

A great benefit of rental property in New Zealand, is its moderate risk based on historic trends of high yields. Because you’re buying a physical asset with measurable growth factors and predictions, it’s a relatively secure investment. 

New Zealand homes median house prices continue to rise. This indicates that purchasing an income/investment property will assist you in covering the asset’s expenses. In addition, it allows you to benefit from the asset’s capital growth and eventually, supplementary income.

4. Adaptability

Do you want a small income property to supplement your income? Alternatively, do you prefer a larger section as a capital investment, which simply increases in value? Whichever your preference, investing in property can easily be adapted to your requirements.

With the security of land ownership and a regular supplementary rental income, an investment property offers you real financial gains without excessive risks. Furthermore, you have the option of purchasing an existing home or building a new one, depending on your goals.

Adaptability

5. Banks Are On Board

Banks are now backing new builds more than ever, so the time has never been better for taking the plunge. With ‘Back My Build,’ ASB bank has created a scheme dedicated to building more houses. This is regardless of whether you are going to live in them or rent them out. ANZ bank has also introduced a new incentive, ‘Blueprint to Build’. They offer a discount on their floating loan rate for new builds. 

The scheme allows you to put down a 10% deposit for a turn key property which makes the build process easier. This letting you simplify the build process by working with a single developer, concept to completion. You’ll get the benefit of a fixed price contract and a more straightforward, streamlined construction experience. Consequently, the time to build is now. 

In summary, reasons an investment/rental property is beneficial include:

  • Passive Income
  • Return on Investment
  • Moderate/Low Risk
  • Adaptability
  • Banks are on board

Want To Know More?

If you are interested in investing in an income property or exploring your home loan options, get in touch with the team at Platinum Mortgages. We offer you bespoke solutions for all of your home loan needs. We provide comprehensive market advice that will ensure you are able to make informed and good decisions about your investments.

Is It a Good Time to Refinance When Interest Rates Are Low

With interest rates at all-time lows, you might have heard about taking advantage of this time as an opportunity to refinance your mortgage. This can be a good decision, although there are many factors you need to consider before doing so.

In this article, we’ll examine why it’s worth considering refinancing your mortgage when interest rates are low. We will also look at the pros and cons this could involve.

What Is Refinancing?

Why You Should Refinance When Interest Rates Are Low

Refinancing refers to the process of transferring or swtiching a home loan from one bank to another.

Here are several of the advantages refinancing a loan can offer you:

  • Take advantage of another bank’s products, services, or cashback offers
  • Secure terms when interest rates are at all-time lows
  • Increase your short-term cash flow
  • Build up an emergency fund
  • Borrow money for renovations or investments
  • Cash out your equity for vacations, weddings, or asset purchases
  • Avoid putting all your eggs in one basket
  • Switch from a non-bank lender to a mainstream bank
  • Switch away from a bank offering a poor service

A common reason for refinancing a loan is to lock in a new mortgage at lower, more advantageous interest rates. This can reduce the total amount you repay over time.

You can also reduce the interest you face using debt consolidation. Cashing out the equity in your mortgage when interest rates are at all-time lows can allow you to repay short-term personal loans and credit cards, which often have very high interest rates.

If you can afford your current monthly payments, you could benefit from refinancing to a shorter term when interest rates drop. Your interest will have less time to accrue, which means that you will pay less for your loan over its lifespan.

Another reason to refinance a loan, is if you had bad credit and your credit rating has improved over time. You could end up with more preferable terms. This could end up saving you money in the long run, especially if you do refinance when interest rates are at all-time lows.

However, just because interest rates are at record lows, it does not mean that you should automatically look at refinancing your mortgage. There are also costs and risks to consider before making such a significant financial decision.

The Costs Of Refinancing A Mortgage

The Costs Of Refinancing A Mortgage

Legal fees, early termination fees on a current loan, and new house valuation fees – these are just some of the financial costs you can run into when you choose to refinance a mortgage.

All these various fees mean that if you switch your mortgage for an interest rate that is only slightly lower than what you are currently paying, even when interest rates are at all-time lows, you could actually end up paying more out of pocket in the long run.

So, if you’re considering refinancing your home loan, you must tally up all possible expenses to make sure that the benefits of switching really do outweigh the costs.

There are also situations where you aren’t likely to gain much from refinancing your mortgage. For instance, if you’re near the end of your mortgage term. You’re unlikely to see much benefit from refinancing your home loan in this case. This is because savings are usually accumulated over time.

As you can see, switching your home loan can be a big decision. That’s why, if you’re thinking about refinancing your mortgage. Perhaps the reason is because interest rates are at all-time lows, a Financial Advisor from Platinum Mortgages can help. Rates are changing and you wnat to make an informed decision. We can assist you with weighing up the pros and cons of making a switch, so you end up with the best loan for your needs.

To learn more, please contact us at 0800 LENDING today.