House prices still rising

In this newsletter

Hi Everyone

Times have changed- as we all know

Recently a client sold a home to free up cash since they wanted to buy shares in a company he works for, which the clients saw as a great opportunity and better returns. They were wanting to release one property and reduce to 80% lending against the remaining security.

Since this non bank lender was at a higher rate they wanted to see if they could get a lower rate at a main stream bank. Their existing lender said yes, to retaining 80%. However, the proposed main bank lender wouldn’t allow them to have the $300k as available funds. They wanted proof of the share purchase, which no one can provide until they are bought. Clients are settling the first property and were hoping to avoid double solicitor fees by refinancing on the same day. They now have an approval from the other bank to refinance the non bank lender after they have bought the shares. At that time it will be a straight forward refinance of a mortgage at 80%.

The reason? The Anti Money Laundering Act. I am sure people who “launder” money, still do that and have found ways around this issue. However, those that don’t have any intention to do this are caught in the middle of this act which is, in this case, costing them extra conveyancing costs.

House prices are still rising- give yourself a long finance clause if purchasing

Lots of home sales are looking at multi-offer situations now.

One of our clients expected to sell around $440,000 and sold for $530,000 at auction in Pukekohe. Another listed hoping for $420,000 in Ngatea but really thinking they would get around $390,000. They have an unconditional offer of $10k above asking price. So much for a huge drop in house prices.

If you are looking at buying it is advisable to have a pre-approval in place. The banks are currently slow in processing applications, especially if there is no S&P attached. A pre-approval can stay current for up to 90 days (depending on the bank) and can be extended for a further period. This gives you plenty of time to look around.

When you find a property you are interested in then you can let us know the address, the proposed purchase price (and a rental appraisal if an investment property) then the bank can confirm the property as being acceptable to them. This way you can offer an unconditional agreement which puts you in a much stronger position to negotiate.

Mortgage rates? Up or down?

Listening to various NZ economists, interest rates are still expected to drop and not go up for a long time. We get several people wanting to go onto the lower rates. However, if you want to break existing rates then it is often an expensive experience and the break cost is approx. the same as if you continued to pay at the higher rate. It might be worth considering only fixing for 1 – 2 years to see what the rates will do rather than lock yourself in for too long.

Back in the day, we all thought 7.4% was a great rate, none of us could have foreseen rates below 3%

Updates from several economists

NZ is bouncing back very well and is not having the major unemployment that was expected. Job numbers are now only 3,400 lower than in February before the lockdowns started. Unlike previous recessions the loss of jobs this time around has not been in the good-producing part of the economy but rather in the services sector. The interesting part is that the growth in service sector jobs is almost back on its previous rate of increase which is positive

Purchasing Investment property?

There is some mention from investors who are now looking at new homes, even off the plans, rather than an older investment property. This is because of the compliance associated with bringing older properties into line with the introduction of the Healthy homes. I have personally updated my investments to comply and as such the rents will go up. Most investors are being more careful about the kind of tenants they let their properties to. One comment I received from a non-investor was that property letting companies were making it so hard for potential tenants. My response was that property investing is a business and not a charity. With the no cause 90-day termination clause being removed, investors have to be really careful who they take on as tenants. This is just going to mean that it will be much harder for tenants, other than with good references to find another home. With all the compliance costs rent will go up as investors need to recoup those costs.

Doing up a home?

Some banks do an easy top-up without needing a full application. If it’s a major renovation, then they will ask for quotes but usually not for the under $50k projects. Please make sure you have your materials ordered. I’m hearing of shortages in some materials which could cause holdups in your renovation schedule. Any question regarding finance including first home buyers, refinancing, consolidating debt, construction finance or business finance? Call either