Real estate boss explains why disheartened Kiwis should consider and explore brokers and non-bank lenders
For many Kiwis, soaring rents are having a bigger impact than rising interest rates.
Tim Kearins, owner of Century 21 New Zealand, urged hopeful first-home owners to not give up on their dream and to go see a mortgage broker as they may discover that “servicing a mortgage can still cost less than paying their landlord rent.”
Kearins said rents have kicked off the year at an all-time high, with strong demand continuing to hold costs up.
According to Trade Me’s Rental Price Index for February, the national median rent was up by 8.5% reaching a record-breaking $575 per week – its largest annual increase in seven months.
“Sadly, many young people have stopped going onto the mortgage calculators and put their homeownership dreams on hold,” Kearins said. “However, for those who can stump up a deposit and prove their ability to service a mortgage, the affordability of borrowing may surprise them. To make it happen, they should also consider getting in a flatmate or boarder.”
Kearins said despite the tweaks in Credit Contract & Consumer Finance Act (CCCFA) after a serious credit crunch over summer, big banks continue to conduct ultra-conservative assessments on all new borrowers. Prospective buyers have other options to turn to, however.
Kearins said mortgage brokers like Julius Capilitan of Century 21 Financial do all the running around, delivering competitive rates and greater borrowing flexibility than traditional banks.
Since November, no more than 10% of a bank’s total new lending for owner-occupiers can be high-LVR loans – these are loans that are more than 80% of the property’s value. This means at least 90% of borrowers need a 20% deposit or more.
Capilitan said having a 20% deposit significantly helps people’s ability to borrow.
“The LVR tightening has been tough on first-home buyers,” he said. “There are still loans being offered with a 5% deposit, but the success rate is very low as you need a massive amount of discretionary income to prove serviceability.”
Kearins said that brokers and non-bank lenders is “an avenue many overlook” but is “well worth exploring given how tough new lending remains.”
The Reserve Bank’s next OCR announcement is on April 13, which could mark the fourth consecutive OCR hike since October.
Kearins urged renters not to be put off by banks or pending interest rate rises. Historically, 6% or 7% rates have been about the average for Kiwi borrowers, and New Zealand is still some way off those.
“Despite some headlines, we haven’t hit a buyers’ market yet,” Kearins said. “Rather, it’s a balance market with many properties still commanding and achieving premium prices. Nonetheless, this autumn we’re seeing more listings and more opportunities for buyers.”