With the slowing of the property market, we’re seeing less and less houses being sold on the auction floor. This means that houses are either being passed in, or buyers are purchasing by negotiation instead. But, what does that mean for the buyer and their strategy?
When buying a property there are two main ways to make an offer – having done your full due diligence on the property before making an offer, or making the offer subject to due diligence. There is no right or wrong way to make an offer, however the way you make the offer can impact your competitive advantage in navigating the deal.
When purchasing property at auction in a competitive market, serious buyers would’ve already done their complete due diligence on the property including lining up any pre-approved mortgage requirements. However in a slower and less competitive market where more properties are available to be negotiated upon, buyers tend to feel they can be less prepared. Unfortunately, this can lead buyers to miss out on a better deal.
Simply, as a buyer, the lesser conditions your offer has, the stronger your offer is. A seller is more likely to take your offer seriously if you’ve already done your due diligence, as they know that you’re a serious buyer who has done all the upfront work, in order to make the ‘no strings attached’ unconditional offer. This removal of procedural barriers can add a lot of appeal to your offer, and can in many cases, help you to negotiate a better price, as the seller may be more willing to accept a lower ‘as is’ price, to secure a sale.
So to put yourself in a strong position to negotiate, before making an offer on a property, you should understand:
By understanding all three areas of a particular property before making an offer, will put you in a strong and competitive position to negotiate.
So how can a Haven Mortgage Adviser help?
A Haven Mortgage Adviser can help you get your ducks in a row ahead of purchasing a property, whether it’s through auction or negotiation. They’ll advise you on the procedure, not just around finance, but guiding you through the whole process to ensure you’ve got the right actions in place, in order to get you in a position to maximise your circumstances in relation to property.
To optimise your circumstances, engage a mortgage adviser as early as possible in the process. Whether you’re considering buying a new home, or your first home, a Haven Mortgage Adviser can help you navigate the entire process.
Contact us for a no-obligation chat today about your home buying plans.
Nigel Perkins, Director at Haven Mortgages shares how the increased OCR will likely impact borrowers.
Behind the Official Cash Rate
“The double-edged sword of containing inflation vs responding to one of NZ’s most significant natural disasters is a mighty balancing act to navigate.
How the Reserve Bank looks at a red stickered Muriwai Beach homeowner in the eye and says, “You’ll have to pay up to 0.5% more for that mortgage on your home that you can’t access” – that’s incredibly tough when you’ve already been forced to pay to rent elsewhere, all while your insurance claim is a murky proposition, at best.
The OCR is a blunt macroeconomic tool designed to control the flow of money.
Right now, the flow of money couldn’t be more polarising. The sheer brutality of this monetary policy change will be the final straw for many Kiwi families, just to try holding on tight to what they’ve got!
So, what does the increase in OCR mean for you?
How much will rates actually rise? At this stage, you can reasonably expect all floating rate loans to pop up very soon.
We’re not expecting too much movement, if any, around the 2 yrs plus fixed terms (ie 2 yrs – 5 yrs).
Likewise, expect a good slice of the 0.5% increase to be passed through to terms up to 18 months, soonish.
How can Haven help your home loan with an increased OCR?
At Haven, we’re fully committed to ensuring the best options are navigated for every client’s unique circumstances.
These include:
When it comes to navigating fixed rates and mortgage negotiation, time is the enemy. The quicker you jump onto reaching out for assistance, the better the likelihood of providing the best options for your circumstances.”
Get in touch with the team today if you’d like a chat to see how Haven can help!
You’ll need to prove your income
This part is the same as if you were applying for a home loan with a full-time PAYE job – the bank or lender still needs to know how much you earn.
Most banks or lenders will need the last two years of financial records, and will also likely require:
You’ll likely also need to produce bank statements, a declaration from your accountant, evidence of savings for your home loan deposit, and a good credit history.
You’ll need to provide information about your business and your experience
When you’re trying to win over a client, or participate in a networking event, you’re going to get asked what your business does, and what experience you have. This is partly because the person wants to know if you’re right for the job, but they also want to know that you’re legitimate and that you know what you’re doing.
The same goes for the banks and lenders. They’ll want to know more about exactly what you do in your business, and how much experience you have in your field. This will help them to determine how stable your business is and the kind of future it’s likely to have. Having this kind of information handy will help you in your endeavour to get a home loan.
Any financial inconsistencies will need to be explained
Even if your income has been low but steady, this can sometimes be more favourable to a lender than extreme highs and extreme lows. If you’ve had any major expenses or there have been some dramatic changes in your sales figures, you’ll need to have an explanation at the ready.
Knowing that your income might fluctuate is part of why banks and lenders have to be so critical with self-employed and contractor income – at any point, you may not be able to pay back your loan. The more careful and consistent you can keep your business finances, the better.
Seeking help from the professionals is key
When you’re self-employed and looking to apply for a mortgage, it’s best to get the professionals involved. This includes an accountant and a mortgage broker.
Your accountant can prepare your financials in a way that makes sense to the lender and clearly shows your financial position. They can even prepare cash flow forecasts to show likely income and expenses in future.
A mortgage broker can help explain exactly what is needed and work with you to get everything in order to give a well-presented picture of you to the bank or lender.
Self-employed and need help getting your home loan sorted? Come and chat with us. Our team of expert financial advisers can get you on your way to owning a brand new home.
1. Have you done your due diligence?
As with any home you’re purchasing, it’s important to do your due diligence. This includes enlisting the help of a lawyer to look over any contracts and other documentation to ensure everything is as it should be.
Particularly with housing complexes or house and land packages, it’s important that you understand just what you can and can’t do with your new property, and any extra costs that might be involved, such as body corporate fees.
2. Are you satisfied with the developer’s credentials?
When buying a new build, it’s a good idea to do some thorough research on who the developer is and their previous work. Some developers will have showhomes available for you to take a look at to assess the standard of work, but you should always look for independent reviews and background information to check the legitimacy of your developer.
If your developer subcontracts out to a team of builders for example, it’s also a good idea to take a look at the background of these companies so you can feel comfortable knowing your new home is in safe hands.
3. How much can you customise your potential new home?
Depending on the type of new build you’re looking to purchase, your options for customisation might be quite limited. With homes that you purchase while they’re in the process of being fully built, also called ‘off-the-plans’ homes, you don’t tend to have a lot of say in customisation.
If you’re buying a new home that’s being built on land you’ve purchased, you’ll have much more control over what customisations you can make to your home depending on the size of your budget.
4. Does the location suit your lifestyle now and in the future?
Given the lack of large plots of land that are available within metropolitan areas, many new builds tend to be in locations that are a bit further away from the main centres.
That’s why it’s important to check out the area and its proximity to where you work and where you like to spend your down time. If you’ll be holding on to this home for at least a few years, it’s important that its location serves your lifestyle now and in the near future.
If you’re looking at a new build for your first or next home, get in touch with our friendly team today. We can help you sort through your options for finance and insurance, plus if you’re an investor, we can make sure you’ve got all your ducks in a row when it comes to your tax obligations.
Now, this depends on what your situation is. We’ve put together two scenarios to help you get a better idea.
Scenario 1
If you have saved up for a deposit and you’ve got enough income to pay off both your student loan and your mortgage repayments, then it most likely won’t be an issue.
The repayments you make on your student loan will always be 12% of your income, regardless of how much you owe. So, if the lender can look at your income and see that you can service both repayments, they won’t consider this a roadblock.
Scenario 2
If you’ve managed to save up a deposit but your income isn’t quite enough to service your student loan as well as a mortgage, then you might run into some issues. Depending on how big your student loan is, paying it off first before you apply might be the way to go.
Student loans are considered ‘good debt’ because they don’t accrue interest, as long as you stay in New Zealand. It’s also generally considered that once you receive a qualification, your earning potential will increase.
Credit Card Debt
If you have credit card debt, this will have a bigger impact on your chances of getting a home loan pre-approval. Lenders will take into account the maximum amount you could owe on your card even if you don’t spend that amount.
For example, if you have a $10,000 limit on your credit card, but you’re only spending around $1,000 on it each month, the bank will still consider the $10,000 as the amount that you wouldn’t be able to put towards a mortgage.
If you’re looking to get a pre-approval sorted soon, reach out to our friendly mortgage team! They can give you advice on what the best move is for your situation.
1. Deposit
In order to look more appealing to lenders, you should try to save as much as possible for your deposit. The more you save, the less you’ll need to borrow which also makes paying off your mortgage easier! The standard deposit for a home is 20%, however there are options for lower deposits if you’re considering a new build for example.
2. Pay down your debt
If you have any high-interest debt like credit cards or personal loans, you’ll have more success in your application if you pay this off before applying for a loan. It’s a good idea to sort out any unpaid or late debts that might impact your credit history.
3. Proof of income
Lenders will be looking at your employment history and how much you’re currently earning. They will assess if you’re a stable investment and if you have enough income to cover your loan without getting into financial trouble. They will usually ask for a few months of payslips as proof of income and match this against bank statements to check for any discrepancies.
4. Bank statements
Lenders will look at your personal bank and credit card statements to assess whether you can afford to service the loan and how much they should lend you. Be prepared to have your expenses come under scrutiny. They will look at your statements for the past few months and look for missed payments, unarranged overdrafts, and a surplus of expenses.
5. Dependents
The fewer dependents you have, the more likely you are to get pre-approval. Children significantly add to living costs so fewer children mean a higher chance of approval. No kids at all? No worries. If you do have children, this doesn’t mean you won’t get lending, it just means you might need to put in a bit more work to get it across the line.
If you’re not sure where to start to get your first home sorted, our expert Haven mortgage team can help! Just click the button below and we’ll be in touch to have a free, no-obligation chat about how you can make your first home a reality.
They held KiwiSaver balances of $80,000, savings of $60,000, and were fortunate enough to have Lisa’s parents gift them $25,000 to assist in buying a home
There were primed, preapproved, and raring to buy a home.
The property markets had just about peaked, asking prices were nothing short of eye-watering, fear of missing out was a significant market driver, and their maximum setting was worked in at a $900,000 purchase price. Their preapproval maximum was established at $740,000.
It took them a good 6 months of focused slog, multiple auctions, then finally purchase and settlement came in December 2021 – success!
Step forward to Aug 2022 – hypothetically, had Daryl and Lisa presented the same settings for preapproval today, their maximum approvable loan would be $602,000, based purely upon their 2021 profile, vs current market settings.
That’s a massive $138,000 (or 18.7%) less than that which was approved a year ago. This translates to a maximum new purchase price of $767,000, or -15.3%
Why? Interest rates.
Banks add a premium to their prime rates and use these as their debt servicing testing rates. Typically 2-3% higher than their prime fixed rates, these are designed to provision for future rate increases.
In Daryl and Lisa’s case, their test rate used last year was 5.80%. Right now, that same rate utilised is 7.95%.
On paper, that effectively means that they would need to fund an additional $15,910 per annum ($740,000 x 2.20%).
Alternatively, to keep the lending the same, they would require income to be circa $172,000 (i.e. +$24,000)
So what does it all mean?
For Daryl & Lisa:
They love the stability and comfort of home-ownership and are no longer looking over their shoulders at their landlords ‘sharpening their knives’ for rent increases, or worse, sale.
They locked in a good slice of their lending for 2 years at 4.10%, so they won’t have to look into the face of the increased market rates for some time yet
Since the initial contract date, their property value has both moved forward and rescinded a little, and is still on par with the purchase price – regardless, they are highly content to be home-owners, along with all the freedoms and responsibilities this creates.
For the general market:
Formalising a preapproval can be tough. Retaining it amidst rising interest rates, even tougher. Pre-approvals are typically only good for 90 days, whereby all numbers are then re-cast, reviewed, and reappraised, all just to enable an extension for a further 3-month period.
All market drivers and filters of late, genuinely seem to have been focused on limiting borrowing and buying power. This is a highly unusual time.
Despite this, almost always, there’s simply no time like the present to get your preapproved ducks in a row – the purchase process often takes well in excess of six months, from whoa to go.
Market changes will always serve up vagaries such as credit appetite tweaks, interest rate volatility, and property market variables. These will all have an impact, but waiting for such uncontrollable factors to be perfectly aligned is a futile strategy.
What can you do?
To shed some light on your current borrowing power, you need the right advice from the right people. At Haven, our friendly mortgage team are experts at walking you through the home buying process. They know the industry and the lenders inside and out and can get your home loan application across the line, doing all of the heavy lifting for you.
Get in touch today to book in a free, no-obligation chat with our mortgage team.
What is a guarantor?
A guarantor is usually a close family member with equity in their property who is willing to help you if you don’t have a big enough deposit saved to meet bank criteria.
They legally vouch for your ability to pay, so if you fail to meet your payments they will need to cover them. Although this sounds like a good option, there are some pros and cons to consider.
Homeowners pros:
Get on the property ladder
If you’re struggling to get onto the ladder and you’re worried about being able to buy a home, using a guarantor can help you get your foot in the door sooner.
Buy without a deposit
If you’re struggling to save enough money for your deposit, a great way to get the remaining amount is using a guarantor. For example, If you have a 5% deposit saved, your family member can guarantee a further 15% of the deposit using their equity.
Increase your borrowing capacity
Using a guarantor can increase your potential borrowing capacity as banks may see you as a lower risk. This will help you to expand your options in your search for a new home.
Avoid LMI
Usually, if you don’t have a deposit of at least 20%, lenders may require you to pay Lenders Mortgage Insurance (LMI). This can add on thousands of dollars so having a guarantor behind you will mean you can dodge these fees.
Guarantor cons:
Long-term commitment
Agreeing to be a guarantor to help your loved one into a home may seem like a great idea, but it’s important to think about the long-term commitment. The average mortgage lasts around thirty years, and you’ll be liable for this time. It may help to use a mortgage adviser so they can negotiate on your behalf with the lender to limit your guarantee to a fixed sum of money and avoid the long-term commitment.
Your property is at risk
Being a guarantor can put your property at risk if you’ve used the equity in your home as security. If the borrower can no longer repay their mortgage, you risk losing your home to the lender.
Jeopardise relationships
Mixing financial and family relationships can cause emotional pressure – things can get messy and potentially ruin the relationship with your loved ones. It’s important to evaluate both parties’ finances and relationships before signing the dotted line.
Financial liability
If the borrowers can’t pay the mortgage back for any reason, the banks will chase you for the cash. This is a lot of financial responsibility to take on so it’s important you understand what it means once you sign.
To learn more about your options for getting onto the property ladder, get in touch with our friendly mortgage team today.
These property tax changes were brought in with such speed and retroactive law that there wasn’t any chance to restructure around them, but it is important to understand the impact they have if you hold investment properties.
Brightline changes
Any properties purchased on or after 27 March 2021 will be subject to a new 10 year brightline test, unless they meet the new build criteria which shortens the brightline period to 5 years.
Interest limitation rules
If you own rental property, these new interest limitation rules may apply to you, affecting how much interest you can claim when completing your tax return. Depending on when you purchased your rental property, the rules will affect you differently.
If you purchased your residential rental property on or after 27 March 2021, the interest paid on your loan is no longer a deductible expense from 1st October 2021 – unless it meets the new build criteria.
For property purchased before 27 March 2021, the government are slowly phasing out interest deductions over 4 years as per the below.
| Income Year | Percentage of interest you can claim |
| 1 April 2020 – 31 March 20211 April 2021 – 30 September 2021 1 October 2021 – 31 March 2022 1 April 2022 – 31 March 2023 1 April 2023 – 31 March 2024 1 April 2024 – 31 March 2025 1 April 2025 onwards
| 100% 100% 75% 75% 50% 25% 0% |
Interest deductions for any new loans on or after 27 March 2021 is not allowed from 1 October onwards.
Exemptions
Some residential accommodation is excluded from these new interest limitation rules, including land businesses, residential developments and new builds.
Also exempt from these rules are:
Your main home (if you earn income from this)
Your business premises
Farmland
Certain accommodation providers
If you’ve recently refinanced or have a revolving credit, special rules will also apply.
What does this mean for your tax return?
You’ll need to consider the new interest limitation rules when you’re completing your income tax return from the 2022 income tax year onwards and check whether you’re eligible for an exemption.
New fields have been added to the returns form so you can provide information about your residential rental property interest expenses. These new fields will include the total interest, the interest expense claimed, and the reasons for claiming interest expenses.
If you sold a residential property that was taxed under the bright-line rule, you’ll also need to note this in your returns.
Need help?
If you are planning on buying an investment property or making changes to your existing portfolio, you need to understand the impact of these changes and how they relate to different properties. Talk to us before you make changes that may have a negative impact on your tax position.
If you’re not sure whether these new rules apply to you, or you just want help filing your tax return in line with these changes, our expert accounting team can help. Give us a call on 0800 700 699, or email us at accounting@haven.co.nz to get started.
This has now all culminated in 5 primary market drivers, all independently orchestrated, and now perfectly aligned, to create quite the impact on New Zealand’s current real estate markets, all in a relatively short space of time.
1. Property investment tax-deductibility – Government (Oct ‘21)
Significantly undermining tax efficiency, cash flow, and overall yields, particularly of existing property stock versus a new build investment property.
2. LVR restrictions – Reserve Bank (May & Nov ’21)
In an ongoing battle to control macro market risks, banks were further directed to markedly reduce the amount of ‘low equity’ lending, to both homeowners and property investors alike.
3. Interest rate hikes – Reserve Bank (Oct ‘21)
In an attempt to rein in inflation, of which many point the finger at RBNZ for creating in the first place through the ‘money printing’ practices in response to the pandemic, the cost of using lenders is heading north at a genuine breakneck speed.
4. Property Market Dynamics – Ongoing
Most people were well aware the property market was simply an unbridled beast for far too long, with the age-old adage of ‘what goes up must come down’, the difference between January ‘22 versus June ‘22 is sobering reading for many.
5. CCCFA – Government (Dec ’21)
In the final blow of throwing everything and the kitchen sink at the housing market, those ‘notorious cups of coffee’ impacting your capacity to get a home loan. The new laws driving the treatment of discretionary spending in regards to mortgage lending settings, effectively handcuffed the banks and other lenders alike, in many cases, stopping Kiwis in their tracks.
This single piece of legislation has had more impact on the market than any of the other drivers. Not only has it stopped New Zealanders from buying a house, but it has also stopped people from topping up their mortgage for renovations, business assistance, or simply restructuring or refinancing their mortgage onto friendlier terms.
The CCCFA was criticised for depriving credit to perfectly dependable borrowers, and after backlash, submissions and complaints, a review was initiated.
The review findings are now in and the news is very good. Parts of this legislation have been refined, with banks now once again able to use their own judgement in assessing applicants’ discretionary spending levels, without fear of incrimination.
From July 7th, these reviewed changes will be implemented. Everyday Kiwis’ access to residential credit will once again be more ‘normalised’.
If you want to explore further what these changes mean for your specific situation, get in touch with our expert mortgage team. We can help you maximise your home loan potential to put you in a better position financially.