January Finance Report 2021
15 Feb 2021, Mark Thompson and Mortgage Express
Hello and a belated Happy New Year. As you will be seeing the market has warmed back up again after perhaps a short lull over the Christmas holidays. So too is the need for home buyers to get their finance ducks in a row.
There has been little activity along the interest rate scene over the last few months with the most notable exception being the collective reduction of the shorter term (mainly 1 year) interest rates. The most favourable and common of the 1 year fixed rates on offer is 2.29%p.a. and almost every main bank will have this. Also of interest is the fact both TSB and in particular SBS have reduced a range of their rates to be more in line with the Big 4 Banks (5 if you count Kiwibank).
The Reserve Bank has confirmed the worse kept secret in banking in that they will reintroduce LVR restrictions to property investors. This will mean from the 1st of March property investors will require 40% equity to purchase an investment property. Most banks predicted this and almost all have adopted the change already. This will hopefully have the desired impact on the property market and make buying a home for first home buyers that much more achievable.
Interest rates are now not expected to continue to drop as much as had been touted in the second half of last year. Most credible economists are now saying they do not expect the RBNZ to drop the Official Cash Rate (OCR) for the next couple of years. This not to say lenders won’t sneak down their rates a little but it will be more about them wanting to capture market share as opposed to a reaction from a drop in the OCR. It may be that rates beginning with a 1 are not as likely as first thought. On the flip side they are also not expecting much of a rise in OCR over the same period. So consistently low rates as they are now is most probable. But remember – these are only predictions. No one actually knows what will happen.
First Home Buyers – a new challenge
It is evident that the heat in the property market also promotes, at times, the bringing forward of auctions. This would be where a vendor is happy with an offer in principle and working in conjunction with their real estate agent or consultant, agree to bring the proposed auction date forward. There are, of course, many good reasons for doing this. Usually for the benefit of the vendor and maybe the potential purchaser that prompted the change in auction date.
There are some downsides though as speed diminishes demand – as some potential bidders/buyers cannot arrange their finance confirmation in time for a short-call auction. As you will know, to bid and be successful at auction you are assumed to have all of your finance arrangements in place. It is almost a certainty with every lender that any proposed finance, where the loan to value ratio is >80%, a Registered Valuation will be required. The issue is that a first home buyer would usually be very reluctant to order a valuation until their finance was at least conditionally approved (with the outstanding condition being that valuation). The approval process can take some time and then there is the time in which a valuation will take to be made available.
Bank Turnaround Times
Banks continue to receive record numbers of applications. Some are reacting to this better than others and are resourcing accordingly. There are always one or two lenders that are feeling the pressure at any one time but they tend to change and go through cycles. My approach has not changed – in that my preference (unless advised otherwise by client or circumstance) is to offer the incumbent lender the first opportunity to provide finance.
Turnaround times tend to be averaging about 10 working days from the time the lender acknowledges receipt of the proposal (which in itself can take a couple of days). Non-bank/near-bank lenders are continuing to prove useful and helpful and are finding a much more mainstream clientele they are able to help. Each one has a point of difference and it is the exception rather than the rule that I cannot find a solution of some sort for a potential borrower. It is then the decision of the borrower as to whether or not they consider the terms of the finance offering to be acceptable to them. Sometimes it might be considered an interim solution until their circumstances improve.
If I can be of help to real estate consultants or buyers in any way, please do not hesitate to contact me directly.
**Important** the above commentary does not constitute Financial Advice. Should you or someone you know wish to know more in respect to their own unique circumstances and financial position, they should meet with a qualified and experienced Mortgage Adviser before making any life changing decisions.
Mark Thompson, Mortgage Express Mortgage Advisor
021 379 441 / firstname.lastname@example.org