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Kiwis are property mad. Many New Zealanders
choose investment property over other asset choices such as bonds
and shares. It is also very common for many New Zealander’s
to own both their own home as well as investing into rental properties.
Kiwis love the beach with 85 percent of all Kiwi’s living within
100km of the coast. The Kiwi “Bach” (pronounced –
batch) – or holiday home, once a pinnacle of simple living and
Kiwiana is now worth a small fortune.
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| The Welington hills |
Property can effectively be divided into two
stages. Renting a home when you first arrive and then eventually buying
which will potentially involve additional finance or the transfer
of your own funds. If you would like to know more about renting, please
visit our Settlement page.
Obviously the point at which you decide to buy will depend on both
your time frame as well as your budget for accommodation. You may
also be waiting for exchange rates to improve or for the sale of your
own property to be completed. With both of these it is vital to do
your homework before jumping in, also having your finance pre-approved
puts you (the buyer) in a stronger negotiation position.
To help you navigate the property market, take a look at some of the
information listed below, as well as some of the links to contacts.
You may also want to visit our Foreign
Currency page to investigate how your potential offshore funds
may impact on your buying power.
If you are looking to buy a home in New Zealand there are numerous
details to consider. You will no doubt spend a great deal of time
travelling the country to identify where it is you want to live as
well as liaise with real estate agents, solicitors and many other
industry professionals.
It may also be likely that you will be funding a great deal of your
house purchase with overseas funds, whether it be savings or proceeds
from the sale of your family home. If this is the case we recommend
speaking to a specialist currency broker well ahead of time.
Once you have found that dream home its time to work out the finances.
Even if you have bought funds with you, you may need to seek additional
finance. Many people use Mortgage Brokers to assist them with this
process. Below is some detailed information regarding housing finance
in New Zealand and the facilities that may available to you.
There are several factors that will determine the maximum amount you
will be allowed to borrow, these include:
• the size of your deposit,
• your household income, and
• the type, condition and location of the property you wish
to purchase
Most lending institutions will lend to a maximum of between 90% and
95% of the market value of a residential property and under certain
circumstances it may even be possible to gain approval for 100% finance.
Lenders are careful to limit their risk and generally where the deposit
is less than 20%, the lender will charge a Low Equity Fee which allows
them to insure against the increased risk involved. This insurance
is taken out to protect the lender, not the borrower and can usually
be added to your loan.
Deposit requirements can differ between lending institutions and also
across property types:
• houses
• sections
• apartments
• rental properties
• building a new home
As a guide, most lending institutions would require that all financial
commitments should not exceed one third (approximately) of your gross
income. If you and your partner are buying the property together then
the bank will take into account your combined incomes.
Lenders will also take into account any other outstanding debt that
you may have such as hire purchase agreements and credit cards. Any
commitments you have may reduce the maximum amount that you can borrow.
The lenders will also type of income.
Each lender assesses an application in a different way and an independent
mortgage broker can advise which bank will assess your income position
most favorably.
In order to assess a loan application, lenders will require the following
documentation:
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Proof of income – such as employment
contract, recent wage slips, or letter from employe. |
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3 months bank statements. |
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Proof of deposit. |
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2 forms of photo identification. |
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Copy of Sale and Purchase agreement
(if an offer has already been made). |
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| Waiheke Island |
Most lending institutions will consider applications from overseas
investors and non-residents but with some further restrictions.
Maximum lending is generally limited to 80% of a property’s
value, and this may be lower for non-standard security types such
as apartments.
Lenders are required by law to identify the borrower in person in
a New Zealand branch prior to final approval of the loan. They will
also require a New Zealand representative, normally a solicitor, to
hold power of attorney so that they may act on behalf of the client
if required.
A table loan
is the standard loan type in New Zealand and includes a principle
and interest component. The repayments on your loan remain constant
at the level you have chosen but will increase or decrease if interest
rates rise or fall. You can select a loan term of up to 30 years –
the interest rate and the term of the loan will determine the loan
repayment amount.
An interest only loan
may be selected for up to 5 years. With this type of loan, no principal
payments are made and all repayments meet the interest cost. At the
end of the term, the entire sum must be repaid or refinanced. For
the most part interest only loans are used as an interim measure such
as waiting for the sale of another property.
A revolving credit facility
is similar to an overdraft facility and it offers all your bank accounts
in one. Your savings, wage and salary payments all act to reduce your
interest commitments and the reduced balance can be redrawn at any
time. The variable mortgage rate applies, and a monthly account fee
is usually payable. This type of facility offers excellent flexibility
and be a great help in reducing both the loan amount and interest
costs, particularly where significant surplus income exists.
Variable
or floating rate loans
will mean that your interest rate can change at any time. The bank
will advise you in advance of any changes.
The main advantage of a variable rate loan is flexibility. Borrowers
can usually make lump sum payments and increase the amount of their
regular repayments at any time without incurring a fee.
With a fixed rate
mortgage the interest rate on your loan will remain fixed for the
length of the chosen term – most banks offer fixed rate terms
up to 5 years . Fixed rates offer certainty, particularly if you are
concerned that interest rates will rise and you won’t be able
to afford an increase in repayments.
Fixed rates do not offer the same flexibility as variable rates however.
Most lending institutions will charge a fee if you want to make additional
repayments during although some provide limited scope to make lump-sum
or additional repayments without incurring a penalty. It is also possible
to avoid these penalty fees by making your lump sum payments after
each fixed term expires and before you refinance.
You will probably face a penalty payment if you wish to break your
fixed rate contract. Some lenders may not charge a fee to break a
fixed term contract if interest rates have risen above the levels
that you are fixed into. However, they will usually charge you a fee
if interest rates have fallen.
In New Zealand there is also the option of splitting
your loan. You can split your loan between a variable rate and a fixed
rate (or several fixed rates), split it between a revolving credit
facility and fixed rate, or even split it between all three. This
offers significant flexibility and allows you to plan to repay future
lump sum payments without penalty.
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