Cautions for current market
Do your homework before you borrow, because some lenders are being cautious in the current soft property market.
Thursday, June 29th 2000, 12:00AM
by Paul McBeth
Do your homework before you borrow, because some lenders are being cautious in the current soft property market.
That’s the word from mortgage and property specialist Kieran Trass, who says he’s seen lenders becoming "more concerned and more selective". Trass, Managing Director of Apex Mortgages, says that banks are starting to reduce the amount they’ll lend on certain types of property, such as apartments and terrace houses, in light of the risks associated with declining market values.
"There’s a huge oversupply of apartments in Auckland and no-one is prepared to admit it: I’ve seen some properties advertised for over a year," Trass says.
"However, some mortgage lenders are using the nature of the property almost as an excuse to reduce the amount that they lend. In the old days, the banks used to put a lot of weight on people’s character.
"That was tossed out for a while but now, to some extent, they’re hiding behind the type of property. To one person, they might say it’s a terrace house and they’ll only lend up to 70 per cent, but for the next person they’ll lend 80 or even 90 per cent (on a similar property)."
"The feedback we have been receiving from developers and lenders is that some would-be purchasers of apartments and terrace houses are unable to settle their proposed purchase due to the security requirements of banks."
However, he says the rental market, in Auckland at least, is strong for these kinds of properties so there are some good buys out there for investors with enough capital.
William Cairns of mortgage bankers Cairns Lockie agrees that lenders generally are being cautious. "However, we’ve been pretty consistent. We will go up to 80 per cent owner-occupied and about 70 per cent on investments."
"What has caught a few people out is where they’ve bought serviced apartments and lenders have assessed them as having a commercial risk. So instead of 80 per cent, they’re struggling to borrow 50 to 60 per cent." His advice is don’t go unconditional, but make your offer subject to finance.
Trass also says that some people are getting confused about the amount they’re able to borrow. "They think they’ve borrowed 100 per cent on a particular property, but they don’t realise that the bank’s relying on other security that they own."
So, some more advice:
- Remember that you’ll probably be able to borrow a lot less on an apartment, terrace house or other property types than the standard residential house (see table below).
- Do your homework. LVRs vary widely for apartments, for example, from lender to lender and from area to area. It’s also likely to matter whether the apartment is serviced, owner-occupied, or whether it’s purpose-built or a conversion of an existing building (not so popular with lenders).
- Do your homework again. What a lender will offer you may vary substantially from what the same lender has just offered your next-door neighbour.
Some loan to value ratios (LVRs) for different types of property are given below. These figures were supplied by Kieran Trass of Apex Mortgages: note that they are indicative only and are for investment properties. The actual ratios will vary depending on your personal circumstances, the lender used and the particular property (its quality, location and so on).
|
Type of property |
Indicative LVRs for investors |
|
Standard residential property |
80% |
|
Vacant residential property |
75% |
|
Terrace housing |
50% to 70% |
|
Inner city apartments |
50% to 70% |
|
Block of flats (usually four or more) |
60% |
|
Commercial buildings |
60% |
|
Vacant land (without any services) |
50% |