Banks charging mum and pop investors higher margins

LoanPlan Mortgages and Finance

10 October 2016

Banks charging mum and pop investors higher margins

Not only do New Zealand mum and pop investors have to come up with 40 per cent equity to buy an investment property, now the banks are charging them higher margins on their interest rates too.

Auckland mortgage broker and principal of integrated financial services provider LoanPlan, Christine Lockie, says the cost of funds is creeping up for traditional Kiwi investors who may not now be able to rely on any incentives from the banks.

"Last year a mum and pop investor could get a cash contribution from the bank – of up to 0.75 per cent of the loan amount – when they took out a mortgage on a rental property, but that is unlikely to be available to them now

"Investors also have to pay more for the same money. We are now seeing interest rate margins of approximately 0.68% added to funds required for investment property purchases depending on who you go to

While it may not seem like much, the higher margins equate to approximately $1,360 per annum on every $200,000 borrowed.

"I don't think this is a good thing at all because it is mainly affecting Kiwis and the strategies we've traditionally used to prepare for retirement. The problem is with overseas investors, speculators and professional New Zealand investors, but the average person pays the penalty.

"The Government can say what they like. I'm on the ground every day, and I see what's happening. Forty per cent of equity I think is pressure enough without adding to the pain," says Ms Lockie.

Her advice to mum and pop investors who regard property as a reliable investment for their retirement is to shop around.

"There will be opportunities out there depending on your personal circumstances, but for Heaven's sake don't walk into the bank and accept the first deal that comes along – don't limit yourself to one bank because the convenience of it may cost you money in the end.

"My advice is to do your homework and be prepared. Know what you want, and what you want to achieve and make sure you have pre-approval in place before going to market."

Ms Lockie said she was surprised that although the New Zealand Government is pushing people to consider apartment living, there are no apparent incentives for investors to get into apartments and the same 40 per cent LVRs apply for investors.

"I see a lot of interest in three-story apartments. It seems that Kiwis are open to three storey apartments, and the dual key type, in particular seem to appeal to first home buyers because they can rent out the second room/apartment," Ms Lockie said.

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