Mortgage wars

Make the most of the ongoing battle between banks and other mortgage lenders

The banks are at war again, slashing mortgage rates to new record lows.

One-year special fixed rate terms are now under 2.5% for those with more than 20% equity (or a 20% deposit for first home buyers). Such a figure is hardly believable if long-term interest rates are considered.

Rates across other terms are also well-down on anything anyone in NZ has seen before.

So what? – pocket an extra $148 a week

This should be welcome news for many homeowners, property investors, and those hoping to buy a first home. Take a look at an example of how much someone could save:

A couple still have $550,000 owing on their mortgage. Their current interest rate is 4.5% (which was a good rate just a few short years ago!), and they are currently set up with 25 years of repayments to go. If they now secure a rate of 2.3%, and – for the purposes of illustration – those savings are continued for all the remaining 25 years, they could save the scarcely believable figure of $148 every single week.

Those weekly savings could be used to:

• Repay the mortgage many years sooner, or
• Perhaps contribute to an investment which should provide a better long-term rate of return than the mortgage rate of 2.3%.

No decisions can be made on how long these rates will be available, and as always, that largely depends on overall market conditions.

Existing mortgage holders can benefit from bank vs bank

In the dog-eat-dog banking world, banks will often strive harder to take customers off each other than they will to keep existing customers. This means you might get a better deal by switching your existing mortgage between banks. Naturally, there is no “one size fits all” solution in this area, so it pays to evaluate your overall financial situation before making such a decision.

Property investors loan to value ratios (LVRs)

After regulators imposed a 40% deposit requirement on property investors earlier this week, more customers are expected to be turned away by their bank. Under the updated rules, banks will only be allowed to lend 5% of their total overall lending book to investors above 60% LVR. In effect, it means most investors will struggle to borrow unless they can provide a 40% deposit.

While these new rules only technically apply from May, three of the four largest banks have imposed their own 40% deposit requirements on investors in recent weeks.

The restrictions are being introduced as the government try to take some of the heat out of the housing market, with investors copping the blame for soaring demand and price inflation.

This may mean property investors increasingly turn to non-bank lenders. These lenders are often called second-tier lenders. They include lenders who are in the business of providing finance but aren’t the traditional registered banks like those included above. Non-bank lenders include building societies and credit unions. Especially for property investors, second-tier lenders can offer loans to help buyers secure a mortgage with a lower deposit. The main difference between first and second tier lenders is the LVR restrictions. Non-Bank lenders can offer higher LVR limits across your properties. This can dramatically change matters for a property investor.

The non-bank, second-tier lenders also have more flexibility when encountering situations such as the self-employed or even those with an adverse credit history. This makes the property market much more accessible to investment.

A wide mix of people are now seeking non-bank options.

The bottom line - mortgage wars

Mortgage rates are again at all-time lows. If you think you’re in a position to make the most of the wars between the banks, then why not get in touch for an obligation-free chat with one of our mortgage brokers (advisers).

As always: please keep in mind that interest rates are subject to change, and that even with the LVR rules removed, there are still lending criteria to be met with banks or non-bank lenders.