Post the March-April lockdown, the housing market was showing solid resilience. Though things might feel uncertain at this time, with New Zealand moving back to Level 2 and Level 3 restrictions, commentators say the housing market is still looking strong.
The combination of the lowest interest rates we’ve seen, and LVR / deposit restrictions being removed has certainly created a lot of activity for our team. We are fielding a lot of enquiries from clients wondering whether they should make the most of the current environment and upgrade their family home or buy an investment property. If you are thinking about getting a pre-approval, here are the key things you need to know.
Money is cheaper, but not as easy to get
While it is now cheaper to borrow money with interest rates comfortably under 3% for 1 to 3 years from the major lenders, Covid-19 has impacted the way banks look at applications – they are currently taking a more cautious approach to lending.
Banks are asking more questions to ensure clients can make regular loan payments in this unpredictable environment. Borrowers are being asked for specific commentary about the impact that Covid-19 has had on their job, the company they work for or own, and the industry they work in.
Banks are also assessing the client’s ability to meet their loan repayments at comparatively high debt test rates. A debt servicing test rate is the interest rate banks assess a client’s loan repayment affordability against. At the moment, main banks are assessing clients’ payment abilities on interest rates anywhere from 6.65% out to the 7.00% mark, even though actual interest rates are considerably lower.
The removal of LVR restrictions has not made a significant difference to banks’ lending behaviour. Borrowers with high LVR’s (low deposits) wanting to secure funding have to meet stricter serviceability requirements and even then, there’s no guarantee that banks will approve the lending.
Though it might be hard to understand why banks are being so conservative, the good news is that with this assessment by banks there is plenty of buffer which could help borrowers if things did go wrong.
Making it easier for you
If you are looking at buying a new home or investment property, working with a mortgage adviser can make a big difference in putting together your application and getting pre-approved. At what can be a stressful time, let us do the research and work for you! Our team at Apex have a fantastic knowledge of both the main banks and the non-bank lenders to ensure you achieve your goals with the least stress possible.
Want to discuss your next move? Contact us here.