Home loan lending requirements have gone through a significant change with the introduction of the Reserve Banks LVR restrictions which come into effect on October 1st and with it will come a whole set of challenges for investment borrowers.
But, as with most situations, for every challenge there is an opportunity to be found, and in this case – with banks already actioning the restriction of 60% LVR investment borrowing to avoid a backlog of pre-approvals - it is for non-bank lenders to fill a gap to help those looking to purchase property.
However, one of the anomalies of the restrictions being imposed is that it is only applicable to banks.
This is because the majority of home loans in New Zealand are written by banks with non-bank lenders picking up the occasional deal that falls outside of mainstream lenders criteria. With the introduction of a tougher regime, the number of borrowers who will find themselves unable to obtain borrowing through their bank is set to increase and consequently the requirement to obtain funds from different sources will follow suit. We have heard of one business banker who said that most of his investment clients are already above the 60% LVR threshold, so the ability to top up their lending, even for general maintenance, is going to disappear.
This is going to mean that on some occasions, those wishing to take out a mortgage to purchase property will find themselves paying a higher interest rate and often with additional set up costs, meaning that the real cost of purchasing property is set to rise. But not all non-bank lenders are out to charge exorbitant fees to those borrowers outside mainstream deposit requirements who wish to purchase while interest rates are still low.
There are some lenders who have products in place that allow them to assess applications based more on the merits of the deal presented rather than having to follow a set of guidelines stipulated by the Reserve Bank. These lenders still require applicants to have the basic canons of lending, such as good credit history, strong income to cover loan repayments and suitable collateral against the loan, but they will “look outside the square” to find a way to make the deal work.
This type of lender differs from those finance companies that collapsed around the time of the GFC and they have had to provide an indication of fiscal responsibility and financial strength in order to continue trading. While there are still some lenders who will focus on lending to those with adverse credit histories, charging interest rates and set up costs that reflect the higher perceived risk, many non-bank lenders may well provide a solution for those wishing to borrow who may not fit inside the banks criteria for ideal candidates for home loan borrowing.
The key thing is to find the solution and create the opportunity that is going to suit your individual situation and reflect your needs in the best way for you to be able to purchase your new property.
