There have been some major changes in banking driven by the reserve bank in recent weeks.
Here are the key points:
ASB has pulled pre approval. Watch this space and don’t take anything for granted.
Lending below 80% of house value is business as usual and very competitive between banks.
Banks have already moved to restrict lending above 80% against the house value.
If lending is possible for above 80% LVR – banks are generally limiting it to existing clients only with very strong incomes (usually 2 incomes).
Banks will honour current pre approvals over 80%, however they won't make any changes to the approval upwards (down is ok).
Reintroduction, or major increase, in establishment fees and Low Equity Premiums – even if you are pre approved these fees and increased charges will apply.
Removal of all legal contributions for above 80% lending.
Application and approval times are taking a lot longer.
Existing home owners are being declined finance to purchase new properties because they don’t have 20% equity from the sale of their house after covering repayment of existing mortgage, real estate, legal fees, repayment of all debts (credit cards, H/P, overdrafts) and other costs.
Kiwisaver and Welcome Home Loan Changes
There are some positive changes to help those double household income people with only 10% deposit
Funds from Kiwisaver and HNZ Subsidy can’t be used as deposit towards real estate firm (purchase agreement)/vendor.
Must be a minimum of 10 workings days to get approval from HNZ.
Another 10 workings days from unconditional to settlement to get funds paid to solicitor from HNZ receiving the purchase agreement – remember solicitor cannot apply for these funds until purchase is unconditional.
Welcome Home Loans – must be in current job for a minimum of 12 months.
Maximum House Purchase Price has increased in Christchurch and Selwyn districts to $400,000 (up from $350,000)
You need a minimum of 10% deposit - for Kiwisaver subsidy the 10% can include money withdrawn from Kiwisaver and subsidy amount. Affordability has to be very strong
Income new 2 tier system - $80k for one buyer - $120k for two or more buyers (this is a good increase).
Our Best Advice
Communicate with me (and solicitor) on your requirements for finance prior to drafting sale and purchase agreement.
If guarantees are being used, ensure enough time is available within the finance clause for the guarantors to get independent legal advice.
Ensure deposit on purchase agreements doesn’t include Kiwisaver and Kiwisaver subsidy – ensure you have access to funds to pay deposit – or discuss with me a temporary overdraft to pay the deposit on confirmation of the contract.
Finance Clause for Vendors – Remember when you are selling a property, the banks can ask for all debts to be repaid (including credit cards, personal loans, guarantees and overdrafts). After real estate fees and other costs, this can reduce their equity for new purchase below the minimum 20%.
Important note: Each action has a reaction – from a lending application, if clients are able to arrange other types of finance to bridge the minimum 20% deposit or retain other debts (e.g. GE Cards, Credit Cards, H/P etc.), it will affect their expenses and ability to service the loan under affordability criteria. So it’s important clients gain full understanding on the impact of doing this on their personal/family budget and ability to raise finance under affordability criteria. Feel free to call me and discuss your options 03 319 5482, 027 503 1080, or email firstname.lastname@example.org