1. You are currently taking mortgage repayment holiday or interest-only loan, but your income back to normal, what you should do?
Some people are excited to get back into work and to see their job income is backing to normal.
We suggest you come back to the regular loan payments early, if possible, by ceasing the mortgage holiday if you feel confident on your current repaying capability. By this way, you can save tremendous costs down the track. If this is your case, you generally have two options:
Loan repayment option 1:
You pay more than before, so that you could catch up the loan term -- say before the mortgage deferment, you probably have 20 years to go. Now (2 months later), if you want to make sure that you still have 19 years and 10 months to go, you have to catch up that payment to keep your loan term the same. But considering some people might only get 80% of their normal income, and not everyone can pay more, here is option two.
Loan repayment option 2:
Keep the same payment, and might need to extend the loan term – if you’ve been paying the minimum repayment amount required by 30-year loan term, unfortunately, you have to go with the option one (pay more) because you can’t extend your loan term. But, if you were paying more than the minimum, then you can choose to pay the same repayment amount or even lower than what you used to pay because you can extend the loan term.
Loan repayment option 3:
Only happens when you’re coming off the fixed term – the mortgage rates dropped to the new historically low. Even you had to increase payments as a result of taking the mortgage holiday, or interest-only period, but the rates also drop, so they net off each other. By this way, you can choose to pay the same without extending the loan term.
On the contrary, if there is still an uncertain expectation for your income and you are running out of the mortgage deferment period, you can extend your term but up to six months.
2. Looking to buy a property in New Zealand now? Here are some banks’ lending policy changes you might need to be aware:
2.1 New Zealand mortgage interest rates drop to the new historically low
The good news is, all banks have adjusted their rates – some changed one-year fixed term rates, and some adjusted two-year rates. The lowest rates for one and two years are 2.79%, depending on which bank you talk about. The current highest rate is 3.05%. With the lower mortgage rates, your finance cost is going to be much lower than before.
However, the cheapest rate may not be the best choice for everyone. When making a good decision for your interest rates, you need to take your personal situation into account.
2.2 Banks are re-opening home loan applications to new-to-bank customers
Due to the very limited capacity, some banks could only assess loan application from their own customer (whose income being paid into that bank) during the Covid-19 lockdown. Not to mention they had to dedicate a lot of time looking after their mortgage deferment applications.
The situation is changing now. Banks are capable of assessing more applications and they start opening their doors to the new customers.
2.3 Banks’ lending policy tightening: some may not consider boarder income
In the past, when assessing how much you can borrow for your home loan, banks factored in your boarder income. General to say, one boarder can give you between $80k to $100K of borrowing capacity.
However, some banks (e.g. BNZ) stop taking any boarder income into account, regardless how much boarders you receive now, and some banks (e.g. ASB) only consider one boarder when calculating your income. Consequently, your borrowing capacity would be negatively affected.
Not each bank has tightened up their boarder income policy so far, but we’ve seen the momentum. If you are thinking about applying for a pre-approval, you need to act fast, just in case your banks follow the lead.
What’s more, if your income was reduced during the lockdown due to the Covid-19 and now it has been improved, then you will need to get an employer letter confirming your ongoing income, so that banks are comfortable about your ongoing servicing ability.
2.4 Property investors: lending policies become conservative
The New Zealand Reserve Bank has removed mortgage loan-to-value ratio (LVR) restriction for the next 12 months. After the announcement of this big change, only Kiwibank announced to increase their LVR up to 80% for investment property while other banks haven’t taken any action yet.
In fact, it’s actually going backwards. We noticed that some types of investment loans that used to exempt from the 70% LVR rule, such as construction loan, off-plan property, refinance, now has been required to be strictly controlled within 70% (and 65% for apartment loan).
This reflects the uncertainty in the current economy and property market environment, and they need to be conservative to mitigate their risks.
2.5 First home buyers: banks are more open to pre-approvals for LVR over 80%
This is good news for first home buyers.
In the past, some banks limited the number of high LVR loans, and you may not be able to get a loan pre-approval until you find a live deal, which means you would need to sign a conditional offer first, and then go to the bank and get it financed. But if you don't buy that property, your offer will be withdrawn.
Now, there is no limitation on the number of loans that can go over 80%, and banks start opening their pre-approval for high LVR loans. General to say, you will still need to have at least 10% deposit (or 5% for some special cases) to buy your first home, which remains no change in regards to maximum LVR.
Overall, banks are continuing to take a conservative stance on mortgage lending, given the current Covid-19 pandemic environment. However, banks will keep reviewing their policy, and we’ll update the latest changes with you.
Prosperity Finance – here to help
If you’d like to know how the lending policy changes will impact your borrowing power, and whether you can borrow much more than ever, then we are happy to provide you with a personalized solution that helps you unlock the potential, we’re professional mortgage broker and are here to help you. Call us at 09 930 8999 for a no-obligation chat with our adviser.