40% deposit for investors

You’ve probably heard that banks require bigger deposits for people who want to buy a residential investment property – it was 20%, now 40%…. As a result, I’ve been getting quite a few questions lately on just how this is going to play out for investors and first home buyers (FHB) too. So here goes….

  1. Safety first

If you own a few properties and you’re thinking about selling one of them, you need to check how much of the sale proceeds the bank will release to you. You see, the bank will require your lending to be no more than 60% of the value of the other properties it holds as security, and in some cases you won’t get as much cash from the sale as you were expecting. That could affect a subsequent purchase you want to make, especially if that purchase is reliant on a certain amount of cash coming from the sale and on the same day! Check it out with us before you get too far down the track!!

  1. New builds don’t require big deposits

The RBNZ is mindful of the shortage of housing in this country and understand that making the deposit requirements harder for investors will probably make matters worse. So there’s an exemption for anyone wanting to buy a newly built property or for people who want to build one, which means that a 10% deposit is actually acceptable in a lot of cases. And yes, you read that right – investors can get into a residential rental with as little as 10% deposit so long as it’s a new build.

  1. Will prices collapse?

We think the rate of increase in prices will button off, but they won’t go into reverse just because bigger deposits are needed by investors. As far as the Auckland market is concerned, there are too many factors supporting price growth, all of which are well documented elsewhere (too few houses for too many people, low interest rates, economy going pretty well etc). If a crash is coming, then it’s hard to see LVR limits being the trigger.

  1. Will FHB find life easier?

We know that investors and FHB typically compete for the same properties – ie. those below the median price in any given location. I think this will change in the short term and you’ll generally see fewer investors for a while, but not forever. If you’re looking for a first home then you’ll find life a little easier (but only a little, the shortage of houses overall means you’ll still be battling all the usual factors – other desperate buyers and the general upward pressure of the Auckland market itself). Sorry!

  1. There are good non-bank options

Mortgage brokers have access to non-bank lenders who, by virtue of the fact that they are not banks, are not constrained by the RBNZ rules around deposits. This makes it possible to get into existing residential properties with a 20% deposit not 40%. It means your equity will go as far as it used to before the RBNZ hammer came down.

A few things to consider then… To get to grips with all your options, get in touch anytime.

 

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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