Last week’s budget and Reserve bank announcements provided an interesting selection of issues that could affect those purchasing property in the coming years. While centred around slowing down the Auckland market, there are some changes that will also have an effect here in the Eastern Bay.
The first change which will take effect in October relates to the intention of those purchasing housing. The introduction of a tax on any property purchased with the intention of selling within two years is seen as a gentle introduction into what is known as a capital gains tax. Basically, any profit made between the purchase price of a property and its subsequent sale will be liable for a tax payment at the owner’s normal income tax rate. For example, if someone were to purchase a home for $250,000 then after some home improvements managed to sell for $300,000, any funds remaining after agents and layers fees were taken out would be liable for income tax payment. While it’s thought that this may discourage people from purchasing in a rapidly rising market (i.e. Auckland), those seasoned investors in property will see it as a normal expense in the business of buying and selling homes.
The next announcement was that the Reserve Bank are relaxing the “speed bump” introduced to lenders for their loans for borrowers with less than a 20% deposit. Originally, a restriction was put in place that banks would be limited to only being able to have 10% of their loan values to customers with lower deposits. While this restriction still remains at the same level in our largest city, banks in provincial New Zealand will now be able to have up to 15% of lending taken out by those with a smaller amount of equity. This is great news here in the Eastern Bay where many people have good incomes and account conduct but a smaller deposit. Previously for many clients the only option for low deposit lending was the Welcome Home Loan, which had a cap on the price of the home you wished to purchase and also often came with restrictions on the type of property to be bought. The relaxation of the speed bump means that more people may be able to purchase a more suitable property. There will still be requirements for applicants to show that there is a comfortable surplus of funds after all expenses are taken into account before banks will approve their low deposit application, but it should become a little easier than it has been over the last couple of years.
One last change which is related to lenders appetite for lending, are recent changes to the “Credit Contracts and Consumer Finance Act”. The amendments introduce new principles for lenders around “Responsible lending”. This has been actioned in order to provide a greater degree of protection for borrowers who may otherwise have ended up with lending products that would have been difficult for them to manage. The process that has been put forward as a guideline sets out the key responsibility principles and requires lenders and mortgage advisers to make reasonable inquiries of the borrower before they enter into any home loan agreement. Fortunately, most advisers have been following these processes for some time since the registered financial advisers act came into effect, but it is important for you to know that your adviser should be operating within these guidelines;
To exercise care, diligence and skill in all dealings with borrower’s and guarantor’s.
Help borrowers and guarantors make an informed decision
Act reasonably and ethically.
When considering your home loan options, we can’t stress enough that you should be talking to an adviser with options from a range of providers who can help you to make sure that the home loan that you have suits your situation and provides you with the best loan at the best price to suit your requirements at every stage of life.
