What Proportion of a House’s Value can I Borrow?
There are many banks and lenders in New Zealand, all very keen to write loans.
This isn’t to say they will lend recklessly but if you have met the government’s requirements to work or live in New Zealand as a skilled migrant, you will almost certainly meet banks and other lenders’ mortgage requirements.
When assessing overseas people for a mortgage, banks split them into three categories.
• Mortgage Category 1 – Permanent Residence. Banks and other lenders will provide you with identical mortgage facilities to New Zealand citizens. This includes loans up to 95% (or more) of the value of the property you are buying. However since October 2013 only 10 percent of banks’ new residential mortgage lending can be used for mortgages with a deposit less than 20%. (Note: To cool the country’s real estate markets, especially in Auckland and Christchurch, the Reserve Bank has introduced a requirement that banks must offer mortgages mainly to people who already have a cash deposit available to cover 20% of the cost of buying a property. This was introduced in October 2013.)
• Mortgage Category 2 – Work Permit. Banks / lenders will require more commitment from you than they would from a permanent resident. This varies from the most lenient lenders who require you fund at least 20% of the purchase price to lenders with stricter rules who will require you fund at least 50% of the purchase price. The message is that if you shop around, you should be able to find a loan to fund 80% of the price of your dream home.
• Mortgage Category 3 – Holiday Homes. Banks / lenders will apply very similar rules to overseas people on holiday to the lending rules applied to people in Category 2. Some may be a little stricter.
• Note To cool the country’s real estate markets, especially in Auckland and Christchurch, the Reserve Bank introduced in October 2013 a requirement that banks can offer mortgages mainly to people who already have a cash deposit available to cover 20% of the cost of buying a property.
What Can I Buy?
If you are a permanent resident there are no restrictions on the home you can buy in New Zealand, apart from your own finances.
If you have less than permanent residence, you are limited to buying a home on less than 5 hectares (12.5 acres) of land. You can also buy undeveloped land up to 5 hectares.
If the land is on or next to a sensitive area, such as an island or reserve, overseas buyers and people on work permits are limited to buying less than 0.4 hectares (1 acre) of land.
How Much Can I Borrow Given That My Income Is ….?
This will vary somewhat from lender to lender. A general rule of thumb is that, provided you have no other significant debts, lenders will finance mortgages of around four and a half times your gross household income.
Some lenders will finance mortgages of five times gross joint income for couples provided both of you are in employment.
What Sort of Mortgage Can I Get?
Most New Zealand borrowers have table mortgages. Your repayments do not change over the lifetime of this type of loan. In the first few years you are paying mainly interest. As the years pass, your repayments pay back more of the loan principal.
Another possibility to consider is a reducing mortgage. Here you pay off the same amount of principal with each payment so that interest charges fall with time, as do your payments.
Whether you take a table or reducing mortgage, you will also be able to choose between a variable or fixed rate mortgage.
With a variable-rate mortgage, your interest rate will change whenever New Zealand’s central bank raises or lowers interest rates. Or you can fix the rate for somewhere between 1 and 5 years into the future. At the end of this term, you can fix it again or move onto a variable rate package. Some borrowers take a mixture of variable and fixed rate mortgages. Here are the current mortgage rates offered by NZ’s banks.
How Can I Get The Best Deal from a New Zealand Lender?
You are the boss and the lender is your servant. Provided you do not ask them for too much, they will try to accommodate you.
This means that if you ask them to give you a better deal on your loan, they will; perhaps not as willingly as a good servant should, but provided you ask in the right way, you should be able to get a better deal.
The easiest way to get movement on a better deal is to remind the bank that there are other lenders out there – this can be achieved by pointing to a lower interest rate offered by another lender and asking the bank to beat their competitor’s rate.
Certainly you should try to get the establishment / application fee waived by pointing out that a competitor has already agreed to waive this fee for you. (An establishment fee is a one-off fee charged by banks at the beginning of the mortgage term to cover their costs in establishing the mortgage.)