Finance:

The policy makers for New Zealand lenders continue to fine tune their products with an emphasis on improving current loan to value ratios and reducing fees, particularly LMI (Lenders Mortgage Insurance) fees. Since the beginning of 2011 we have seen a huge improvement in the minimum deposit required to purchase an owner occupied home. In fact in most cases the deposit required reduced for 20% to 5%. By the end of 2011 we saw deposit requirement for investment properties start to reduce. Unfortunately the reductions seen when purchasing an investment property were nowhere near as spectacular as buying a home for yourself.

What will we see in 2012?

There is not a lot of improvement left in the owner occupied market so I believe we will start to see policy around investment properties soften. In this regard I believe lenders will look to improve on their existing policies to capture the growing (albeit slowly) investor market.

Loan to value ratios has to be one of the big movers. As current policy stands (on a stand-alone purchase) it is miles behind its above mentioned counterpart. I have also found lenders are becoming less obsessed with requiring a hook on your family home to gain a respectably low LVR on a rental purchase. These won’t be the only changes in 2012, however I think they are the one most likely to be targeted by the lenders.

Interest Rates:

What can I say? Who would have believed interest rates would have stayed so low for so long in New Zealand. With the average 2 year rate in New Zealand being 8%, you can see we have had it good for a long time now. This looks set to continue with most chief economist forecasting a hold on the OCR (Official Cash Rate) for some months to come.

What’s the best strategy?

I am still of the opinion that a split mortgage is the way to go. Have a percentage of your mortgage on floating and the rest fixed. For large mortgages it may pay to split it 3 ways as this helps spread the risk of rolling over in a time of high interest rates. Please feel free to contact me by clicking here if you would like to discuss what’s best for your personal circumstances.

If you would like to do this yourself here are my thoughts– although the OCR is unlikely to change in the near-term, the longer term rates (2, 3, 4, 5 year rates) can go up or down without the OCR moving. With this in mind (and if you are currently on floating) always keep one eye on the longer term rates as it would be a shame to miss-out on some good pricing on a fixed term because all of your concentration was on floating rates.