Times are getting tough for Kiwi investors wanting loans to continue building their portfolios.
First, there’s the Reserve Bank’s new investor-focused LVR rules which officially came into force on October 1.
The new lending requirements mean that it’s necessary to have 40% equity or deposit to get a loan for an investment property.
And now it seems that banks are charging investors higher margins on their interest rates too.
LoanPlan principal Christine Lockie said the cost of funds is creeping up for investors who now 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.”
While it may not seem like much, the higher margins equate to approximately $1,360 per annum on every $200,000 borrowed, she said.
On top of LVR pressure and higher margins, investors can also no longer rely on getting helpful incentives from the banks, Lockie said.
“Last year, an investor could get a cash contribution from the bank when they took out a mortgage on a rental property.
"It could have been up to 0.75% of the loan amount – but that is unlikely to be available to them now.”
The lending appetite of banks has tightened up of late, according to Kris Pedersen, of Kris Pedersen Mortgages.
In his view, the trend is most obvious in the heightened restrictions for investor lending, but it is a general trend – and not solely due to the Reserve Bank’s macro-prudential policies.
For example, there are issues around the criteria banks are applying to investor refinancing, security releases and sales proceeds, he said.
Yet the Reserve Bank has said that repaying part of a mortgage, via the sale of a property, does not need to constitute a new commitment and need not be in scope for the LVRs.
“So is the tougher lending environment being driven by the Reserve Bank or the market or the Australian banks?” Pedersen said.
“There is a lot more going on with the banks and how they are tightening their lending criteria up than we know.”
Lockie recommended that those looking to property as an investment need to shop around, do their homework and be prepared.
“Know what you want, and what you want to achieve and make sure you have pre-approval in place before going to market."
