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Mortgage Borrowing for Over 80% in the New Zealand Market
By Jeff Royle Published: 09/18/2009
Many Banks these days only lend up to 80% of the property value which can be a big ask for First Time Buyers especially at a time when rents are rising thus making saving a deposit more difficult. So what options are there and are there hidden costs? For starters there are Banks and quite a few non-Bank Lenders who will go over 80% mark under certain circumstances. These fall into three groups. Up to 90%,90% to 95% and 100%. Those lending 95% and 100% have very different criteria and costs involved.
80% to 90% Lending. This is generally pretty straightforward, servicing is calculated in the normal method and the Lenders Mortgage Insurance (LMI) is reasonable and added to the cost of the loan. LMI is an insurance policy that protects the Lender in the unfortunate event of a forced sale (mortgagee sale) when there is still money owing to the Lender. It doesn't cover the borrower and we strongly advise that all borrowers should look into mortgage protection insurance when borrowing large amounts of money. There is a movement amongst Lenders themselves that this should be a compulsory move. Interest rates are standard with a range of fixed and floating rates in line with the general market or a slight margin over. As one would expect with lending at this level that more background checks carried out, some Lenders will even call an employer insist on a Registered Valuation from an approved Valuer.
No Lender will go up to the 90% mark on an Apartment in these times, so houses are the way to go! The deposit can be a saved deposit, a gifted deposit (from 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 period) can sometimes be added into the equation but some Lenders may not accept. A recent change in Bank lending is that Banks will not accept Mum and Dads main residence as security when the borrower (the children) are not putting anything down themselves. This changes when the additional property is a rental.
For 90% to 95% Lending. At 95% borrowing, things start to become very strict with more private information being asked. Usually this involves the last 3 months worth of payslips and the last six months worth of Bank statements. And they must be perfect, no missed loan payments or returned items. Also at 95% Lenders may restrict other amount of debt (such as car loans) so it pays to know exactly what payments you have outstanding as you will be asked about these. There will be a requirement for a Registered Valuation in many cases and the property must qualify in terms of it's condition, no 'do ups' are allowed so if the Valuer makes adverse comments about the property then the Lender won't accept the property. Probably the biggest difference is the LMI or rate charged. A couple of Lenders have changed recently, going from charging an LMI premium to adding a margin to the rate in order to cover the extra risk involved. This margin is usually 1.5% over and above the publicized rates.
Others have reversed this trend and one charges an LMI premium based on 4.3% of the entire loan, added to the advance. 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 a better way to go over the life of the loan than paying this high LMI premium which is only valid for the life of the loan. This means if you re-finance in say three years time the policy ends and there is no refund of premium.