What interesting times we have in the Mortgage Industry with lenders continuing to be very aggressive in their pricing and sub 5.00% interest rates becoming regular again – just like they were in 2013 when 4.50% was the best one year interest rate we were able to obtain. At the same time, the lenders have also been trying to exit the ‘cash grant’ situation with SBS and Co-operative banks not offering cash grants with their recent 4.99% specials. Also “officially” several of the big banks have taken the cash grant away on the web site offers.
While I can understand this (paying for business is silly really) they, the lenders, have brought it upon themselves and once the client has had something so good, it is very hard to take it away. So unless they all withdrawal the “cash” they will really need to retain it under the radar or business will be lost. And this is exactly what I am finding – the lenders are still having to pay to attract quality business.
In line with the easing interest rates I have been spending a lot of people’s hard earned money of late suggesting that they write a cheque to their lender and break their mortgages with the strategy being to either float short term or roll for six months to try and pick the bottom of this cycle. The problem is that no one really knows when or what rate the bottom will be, however the Reserve Bank are being very transparent in their forecasting and OCR reviews, so the risk of getting it wrong is far less than other cycles I have experienced in my career.
Buying More Property
A by-product of breaking mortgages is that it gives a window of opportunity to really shop around and also release a security from the grasps of your existing lender. Our investor clients (including members of the CPIA) have enjoyed great capital growth in the last three years and many now have “too” much security held by one lender. The breaking of mortgages (remember pre-paid interest is tax deductible) gives that opportunity to negotiate a release of a property.
Some of you may have noticed how hard it is to obtain funding of late with the lenders using the 7.75% and 30 year principal and interest formula to calculate debt service ratios. This formula really penalises the investor who will have an actual average interest rate in the 5’s and interest only for 10 years with little likelihood of it going up in the next couple of years, so why use this formula? Perhaps it is to show the Reserve Bank that they are “responsible lenders”. Therefore this situation is unlikely to change in the foreseeable future.
This situation brings the likes of RESIMAC Home Loans (non-bank lender) into play as a possible investor lender. RESIMAC Home Loans do not use the 7.75% and 30 year principal and interest when calculating the servicing held at other lenders – they use actuals, which means they can lend more than trading banks. Yes, they are not quite as sharp on pricing as the main banks however having somewhere to go to increase lending is great. We have also found that a couple of lenders seem to be more flexible in their servicing ratios when the bulk of the lending is held elsewhere.
If you have recently found it more difficult to obtain funding, give Tony Mounce Mortgages a call.
Here at Tony Mounce Mortgages we are continuing to grow and have recently taken on two new advisers, which brings our total to 10. We are very keen to talk to all possible investor clients and our team will meet with you anywhere, anytime (within reason).
No real new news on the 5 Property front except to say the Reserve Bank are still looking at measures to dampen down the Auckland Property Market and a ‘measure’ will be introduced shortly I feel.