November Finance Report
11 Nov 2020,
Allow me to introduce myself – my name is Mark Thompson, and I am a Financial Advisor at Mortgage Express, working with Harcourts gold.
In banking, currently market conditions are relatively similar to real estate. There is a rush to approve and settle loans this side of Christmas before everyone takes a well-earned break over the New Year period, but as your mortgage adviser I will be working through, so am always available to discuss your home ownership goals. Lenders too will be open and operating, albeit on skeleton staff. Turnaround times are currently stretched as a result of the low interest rate environment and record numbers of Kiwi’s either wanting to get on the property ladder, looking for investment properties or simply changing their own living situation. Some are also wanting to make sure they have their loan structured in the most appropriate way and that they are getting the best deal they deserve from their bank.
Many lenders have recently dropped some of their key shorter term fixed rates. 2.49% p.a. seems to be popular for the 1 year fixed option with a few also making it available for 18 months. Commentary that you may have read suggests there may be further downward pressure on rates and that the expectation is that they will remain low, as they are now, for a good while yet. Rates have never been as low as this, so it is a great time to consider getting on to the property ladder. A note of caution though – whenever a lender assesses a borrower’s ability to repay a loan, they will always adopt a “sensitised rate.” This varies, but the rule of thumb is around 2.00% above their floating/variable rate, making it to be around 6.50%. If a proposal does not meet the debt servicing criteria at that level the loan approval may be a challenge. Only just meeting the bank’s debt servicing criteria using a rate of 2.49% leaves no room for an increased interest rate.
As indicated above, turnaround times continue to be the biggest frustration for everyone right now. Some lenders are pushing 15 working days to assess a proposal. They will give priority to applications with a live sale and purchase agreement and will endeavour to work towards a finance date in the agreement. As such, pre-approvals are the lowest priority and therefore take the longest time to turn around. Where possible we can look to fast-track an approval, but the old saying holds true; “if every application is urgent, then none of them are.”
Some Good Wins
I have recently had a couple of applications that were particularly pleasing to obtain approvals for. They are an example that even the more challenging proposals can often find a home if approached in the right manner from the outset.
One was a single mother of one who was seeking a home for herself and her daughter. Having been through a matrimonial where her ex had reduced their home equity to next to nothing, she was in a rather tough position.
However, she applied for and was approved to access her Kiwisaver for a new home purchase. The unusual part of that, was that it was not her first home and not the first time she had accessed her Kiwisaver for a home purchase. Her financial position was the same, if not worse than when she accessed it the first time, so she was approved under Kiwisaver’s “2nd Chance” option. An exception to the rule for sure, but a great benefit to her. The loan was to be 95% of the purchase price, so she also needed to obtain approval via Kainga Ora- which she did. The bank then approved the loan even though she did not have a permanent employment contract. She is working but was on a fixed term. However, the time and experience she had in that position and the ability for her to go back to regular contracting was enough for the bank to be comfortable.
She has now found a house and, subject to a few things such as builders report and valuation, we are well placed to have her and her daughter in their new home before Christmas. A great result.
Another good news story was a borrower who recently returned to Christchurch from Australia. A strong proposal all round really with new jobs all sorted, equity and a sound financial position. Only trouble was really liking a home that was a direct-fix cladding. Many lenders shy away from such properties for obvious reasons, including the lender I had sought a provisional approval from. I quickly sourced a backup offer but it was a 2nd tier lender and not particularly attractive from a pricing perspective. A few calls to a few contacts later, and I learned of two mainstream lenders who would consider such a property (TC3 too to boot). Such properties still need to be supported by a strong builder’s report with moisture readings but if it comes back stating the property is well maintained and there are not obvious issues – then the lenders would generally get comfortable with it.
If you are looking to buy a property or would simply like to talk through some options that you might have, then don’t hesitate to get in touch.
Mark Thompson, Mortgage Express