The Third C, which many Kiwis are facing at the moment as the major hurdle for getting into the property market, particularly into their first home, is Capital.
Lenders will carefully consider the amount of capital a borrower puts toward a potential purchase, whether it be owner occupied, or investment. This can vary dependent on the type of property, and the type of lender, but through all main-banks in NZ the standard is currently a 20% capital (deposit) requirement for an owner occupied property or holiday home, or a 40% capital requirement for an investment property.
The larger the contribution by the applicants, the lower the risk of default, and we definitely know how risk averse banks are. Logically, if you are asking someone else (the bank) to put their funds into a transaction, it makes sense for them to see you have taken some financial risk in the same transaction. An important reason for this, is when you have more “hurt money” in the deal, you are more likely to go above and beyond to ensure repayments are made on time, every time.
Outside of the standard 80% and 60% LVR loans, there are other lending options worth noting:
For owner occupied properties there are above 80% loans, (subject to approval by the lender depending on their capacity to do so at the time). Approval is dependent upon the lenders having such funds available, as the RBNZ restricts the portion of said-lending with each bank. Equally important in obtaining an approval of this nature is the clients overall strength (Capacity, Character). These loans usually have additional conditions attached to them and a margin applied to the rates, or a low equity fee, which can be a portion of the loan amount.
There are ‘non-bank’ lenders who don’t have to abide by RBNZ criteria, who can do up to 70-80% on investment properties. The nature of these lenders can vary significantly because they are usually privately owned, or governed by their own rules.
It’s worth checking with an expert who understands all different banks capital criteria, to see if there may be a more suitable lender for you. Contact me today for a chat.
Read all about the other C's in this 5 part series:
Part 1 - Character
Part 2 - Capacity
Part 3 - Capital
Part 4 - Collateral
Part 5 - Conditions
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