It is a wonderful opportunity to once again be writing this column as sponsor of the OPIA. Our Dunedin-based Mortgage Adviser, Graeme Magorian, is also now part of the OPIA executive committee which is fantastic news.
Rates
The New Zealand 1 year swap rate as of 3rd August 2017 was 2.03, compared to 2.01 as of 1st August 2018. In comparison to the same time last year, there has been a drop of 0.02, meaning rates are flat and largely going nowhere. Interest rates are even showing signs of easing, as we have recently obtained a 1 year fixed rate as low as 3.99% from a New Zealand bank.
New Builds
If you are looking for a way to increase your property portfolio but struggling to obtain a 35% deposit, have you considered new builds?
They are exempt from LVR rules, as well as having other benefits such as less initial maintenance, attracting higher quality tenants and potential for a more attractive yield, new builds can be in the form of traditional construction lending where the loan is disbursed in staged payments, or a turnkey where you pay a small deposit at the start and the rest on completion. Great if you still have rent or other mortgage payments while you build. The exemption can also apply to top-ups arising from construction cost overruns during the build, but it doesn’t apply to borrowing for extensions of existing properties or expenditure such as furnishings. New builds are an excellent option for first home buyers and investors alike.
Here is a case study from a recent seminar we held which shows how it could work:
Mr & Mrs Smith are your typical New Zealand couple with a joint income of $120,000. Their owner-occupied is valued at $500,000 with a mortgage of $200,000. The loanable value of their home is 80% of the valuation, so $400,000. Less their existing mortgage, this leaves $200,000 as a deposit.
If Mr & Mrs Smith want to buy a rental property that is an existing dwelling worth $450,000, 35% deposit needed would be $157,500. Therefore, Mr & Mrs Smith can buy one rental property.
If Mr & Mrs Smith were to look at two new builds worth $450,000 each (total $900,000), a 20% deposit would be $180,000. Therefore, due to the Central Government, Local Government and Reserve Bank all encouraging new builds, and these being exempt from the LVR rules, Mr & Mrs Smith can buy two rental properties (subject to bank servicing criteria being met).
In this example, let’s say the rental income was $450 per week for each property. Add this to the personal income of $120,000 and it does meet all Banks’ servicing criteria.
If you would like to discuss the numbers to see if this is an option for you, get in touch with the team at Tony Mounce Mortgages & Insurance. We would love to chat about how we can review your position and help you achieve your property goals, 0800 MOUNCE.