Interest rates may be at record lows, but credit availability has actually got tighter – and it could get even tighter.
According to veteran adviser Kris Pedersen, of Kris Pedersen Mortgages, that’s due to several factors including the potential impact of capital adequacy ratios, the fallout from the Australian Royal Commission.
More comprehensive credit reporting is required now, which means credit checks have become far more rigorous, and bank servicing calculations are already reflecting this, he told the Gilligan Rowe & Associates Property Leaders Event last weekend.
Additionally, banks have become much less keen on interest-only loans, which are traditionally a popular option with investors.
Pedersen said that when interest-only loans come up for renewal, investor portfolios are reassessed and, if they don’t meet the required terms, they are rolled over on to principal and interest (P&I) loans.
“This is happening because it used to be easier to be compliant and get interest-only lending, but now things are different and the situation is catching a lot of investors out.
“It hits many investors hard as it can have the effect of making their cashflow much worse.”
For investors, none of this is great news.
However, there is help at hand for residential investors who are likely to struggle to get finance in this environment – and it comes in the form of new lending product, Select.
Pedersen said Select, which his company will be offering via a joint venture with NZFSG, has an exciting range of features which would make it attractive to investors.
“It allows for higher LVR lending, it can do 80% standalone (ie: without the family home) lending, parts of the servicing criteria are more relaxed and getting funding for those who are self-employed will be easier.
“While it won’t take us back to the old, pre Global Financial Crisis days of low doc funding, it does mean there will be lots more out of the box options available for investors.”
Interest-only loans will also be available for those with good records and it has rates starting from 4.69% so rates are not too much higher than those offered by the banks, he adds.
“But is not a property trader product, it is not for developers or for land banking or construction, it is not currently for commercial property and it’s not very apartment friendly.”
The product is due to hit the market on June 4 and Pedersen says he is looking forward to being able to offer it to clients.
