On Friday the 3rd of June ANZ announced a number of changes to their lending criteria.
The key changes for investors to focus on are the removal of the Combined Collateral Exemption and that ANZ will no longer provide mortgages for construction for investment properties.
Firstly focusing on the removal of the Combined Collateral Exemption what this basically means is that previously if you had an owner occupied property, an Auckland based investment property and an out of Auckland investment property the bank would apply 80% funding to the owner occupied residence and also to the investment property which was based outside the Auckland council region while limiting funding to 70% of the Auckland investment property as per the Reserve bank regulations that were introduced last year. Now what they are doing is if they hold an Auckland investment property as security the maximum they will lend across the portfolio is 70%.
The issue here for investors who want to keep borrowing is that they can now not leverage as much with ANZ as they could a couple of weeks ago. Now it is yet to be seen whether the remainder of lenders will also implement the same policy but in the meantime if you are wanting to continue to invest and this restriction is likely to stop your ability to access the equity to keep moving then you may need to look to refinance part of the portfolio to a different lender note as per what we recommend normally you are best to keep your personal residence with a different lender than where you hold your investment properties so consider looking at restructuring now.
Secondly, it was a large surprise about the restriction that ANZ will no longer fund for investment builds as this does in some ways seem contrary to what the Reserve Bank was trying to achieve by slowing house price growth while having builds exempted as they are required to fix up the supply shortage. With ANZ being New Zealand’s largest bank and circa 46% of purchases in Auckland being completed by investors it will be interesting to see how this affects things. One part of this criteria is that this also stops investors purchasing apartments or houses off the plans for investment purposes. This appears to limit the risk where investors often try to sign a property up with the plan to onsell prior to settlement. While this can be an effective strategy it also carries high risk at the wrong part of the cycle and it appears the bank is seeking to minimize this exposure.
Keep in mind that politically these changes are likely to be popular as both should assist first home buyers to an extent. If you are looking to build or purchase in an off the plan situation then please get in contact and we can assist.
Changes are coming which will include further credit control tools. It is likely to get harder to access investment lending and there is the chance that the cost of credit could rise. Action points to consider are:
- Topping up your investment properties now to either replenish revolving credit facilities or pay down debt on your personal residence
- Increasing revolving credit limits (note that this is lender dependent as some are very restrictive in regards to this).
- If you have investment builds or are signed up for purchases off the plans make sure your funding is in place.
- Assess your interest rate strategy
If you are wanting a meeting to discuss further to see how these may apply to your situation or if you would like us to assist with any of the above please contact us on 09 486 4719.
Read more June 2016 articles written by Kris Pedersen that talks further about changes to the current finance market:
Most banks getting restrictive on offshore borrowers
Investment interest rates increasing