Auckland-based mortgage broker and principal of LoanPlan, Christine Lockie has shone a spotlight on the increasing cost of funds facing traditional Kiwi investors who may not now be able to rely on incentives from the banks.
Along with 40% equity requirements to buy investment properties, she says mum and dad investors are also grappling with the banks charging higher margins on their interest rates.
"Last year a mum and pop investor could get a cash contribution from the bank – of up to 0.75 per cent of the loan amount – when they took out a mortgage on a rental property, but that is unlikely to be available to them now,” says Lockie.
"Investors also have to pay more for the same money. We are now seeing interest rate margins of approximately 0.68% added to funds required for investment property purchases depending on who you go to.”
Lockie points out the higher margins equate to approximately $1,360 per annum on every $200,000 borrowed.
"I don't think this is a good thing at all because it is mainly affecting Kiwis and the strategies we've traditionally used to prepare for retirement. The problem is with overseas investors, speculators and professional New Zealand investors, but the average person pays the penalty.
"The Government can say what they like. I'm on the ground every day, and I see what's happening. Forty per cent of equity I think is pressure enough without adding to the pain," says Lockie
“All the clients are questioning at the moment, why the rates appear to be higher,” Lockie said, speaking to NZ Adviser.
“We’re just not getting the same discounts as we’re getting for the owner-occupier or for the standard residential property.
“It’s all a bit of a grey area at the moment, whether or not a bank will provide the lower rate if their client loads their existing residential property … I’m picturing that most banks are going to take the attitude of the purpose of the debt, as far as pricing goes.”
Lockie has a long-established client base that has a high percentage of investors. “It’s gotten tougher for those small time investors just wanting to buy one or two investment properties.
“I respect the fact that (the banks) are under pressure from the Reserve Bank to enforce these changes but I would like to see the banks being a little more consistent with their pricing – they’re here, there and everywhere at the moment.”
She also has noticed there is still confusion around the new LVR rules from the client perspective.
“People automatically think they’ve got to come up with a 40% cash deposit when they don’t – if they’ve got that equity in their homes they can still use it. There seems to be a little bit of a lack of understanding in the public area on exactly what can and can’t be done.”
Lockie said the new restrictions have made an impact, and she has seen a huge interest among their investor clients looking to buy outside of Auckland as ‘rent-vestors’.
“A lot of people, because they can’t afford the mortgages in Auckland, they’re looking at buying investment properties before they buy their own home,” she told NZ Adviser.
“They’re looking at buying investor properties outside of Auckland just in order to get on the property ladder. We’re also finding people who are buying outside as the family home, with the worker commuting to Auckland – you’re getting a lot of that compromise at the moment.”