Mortgage Borrowing for the New Zealand Market. What To Do When You Need To Borrow More Than 80% | Mortgage

Mortgage Borrowing for the New Zealand Market. What To Do When You Need To Borrow More Than 80%

by JeffRoyle

Most Banks now only lend to 80% of the property value which is proving to be a big ask of First Time Buyers at a time when rents are rising so making saving a deposit more difficult. So what are the alternatives and are there additional costs? For starters there are Banks and a couple of non-Bank Lenders who will go over 80% in certain circumstances. These fall into three camps. Up to 90%,90% to 95% and 100% Lending 95% and 100% funders have very different criteria and costs.

80% to 90% Lending. This is normally pretty straightforward, servicing is calculated in the normal way and the Lenders Mortgage Insurance (LMI) is reasonable and added to the loan. LMI is an insurance policy that protects the Lender in the event of a forced sale (mortgagee sale) when there is still money outstanding to the Lender. It does not cover the borrower and we advise that all borrowers should look at some form of mortgage protection insurance when borrowing large sums of money. There is a movement amongst Lenders that this should be compulsory, but not as yet. Interest rates are standard with a choice of fixed and floating rates in line with the general market or a slight margin over. As you would expect with lending at this level there are more background checks carried out, some Lenders will call an employer and most will insist on a Registered Valuation from an approved Valuer.

No Lender will go up to 90% on an Apartment currently so houses are the way to go. The deposit can also be a saved deposit, a gifted deposit (Mum and Dad for example) or a mix of both. Vendor Finance (the owner of the property leaves some money in there for a short term) can sometimes be put into the equation but some Lenders might not accept. A recent change in Bank lending has been that Banks will not accept Mum and Dads main residence as additional security when the borrower (the children) are not putting anything in themselves. This changes when the additional property offered is a rental home.

90% to 95% Lending At 95% borrowing things get very strict with more information being asked. Usually this is say 3 months payslips and six months Bank statements. And they must be good with no missed loan payments or returned items. Also at 95% Lenders may restrict the amount of external debt (like car loans etc) so it pays to know exactly what you have outstanding because you will be asked. There will be a requirement for a Registered Valuation in most cases and the property must qualify in terms of condition, no 'do ups' at this level if the Valuer makes adverse comments about the property then the Lender may not accept the property. The biggest difference is the LMI or rate charged. A couple of Lenders have changed recently going from charging an LMI premium (which could not be added to the loan) to adding a margin onto the rate to cover the extra risk. This margin is typically 1.5% over and above the published rates.

Meanwhile others have reversed this trend and some charge a LMI premium based on 4.3% of the entire loan added to the advance. For example, on a $300,000 advance this is $12,900!! It pays to shop around and it may be that a margin on the rate is the better way to go over the life of the loan as opposed to paying this high LMI premium which is only valid for the life of the loan. This means that if you re-finance in three years time the policy ends and there is no refund of premium.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

To find out more information about Mortgage Brokers get in touch with Jeff Royle toll free on 0508 477324, txt broker to 244 (costs 20c) or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it or head over to www.thespecialistlender.co.nz