Articles by Kris Pedersen
It’s been an interesting start to 2017 with a much tighter credit market than what we have seen for most of the last decade. While the majority of the media have been concentrating on the fact that the market seems to have slowed since the 40% deposit rule introduction, I put it more down to banks themselves pulling back in regards to their willingness to lend and interest rates moving up.
Over the last 6 months or so there has been a large change, where the banks have moved from prioritising the growth of their market share to being more interested in growing margins. This, in a lot of ways, has been a result of it being harder for them to access capital especially in the wholesale markets.
The majority of banks now have clear pricing differences when lending on investment properties in comparison to owner-occupied dwellings, and in some cases small fees are now being charged. Obviously this is a big change to what we have got used to with large cashbacks, TVs and holidays being thrown out.
Auckland is going to continue to have supply issues for a long time which will put a floor on how far house prices can come back if there is a correction, as migration continues at record numbers and we simply don’t keep up in regard to new build levels. The gap is only going to widen further with bank Property Funding Units (which handle mid to large development funding) effectively being shut for business at the moment. Expect to continue to hear about more cancelled developments moving forward, with the lack of available credit being a dominant reason for this.
With the aforementioned PFUs pulling back, demand has increased significantly in the non-bank markets with finance companies having to pick up a lot of the slack. With most of these having access to minute amounts of capital (in comparison), many have run out of funds already or are cherry picking the best low LVR deals. Last week I completed a $1.9m transaction which has taken the best part of six months to get across the line and which was turned down by circa 10 companies before finding a willing funder. If I had taken the same transaction to the market 12 months ago, I have no doubt I could have easily funded it even at an LVR 10% higher than what this was originally settled at.
Keep an eye on what is happening in Australia. Their funding regulator has just put in place restrictions that interest-only lending has to be capped at 30% of total new residential mortgage lending as well as caps around the amount of investment lending that can be done. I recommend keeping an eye on Tony Alexander’s commentary as he has recently been talking about credit becoming harder and harder to get. On that point, on the 3rd of May an event coming up which is worth attending is Tony talking with Matthew Gilligan in regards to the economy and property investment.
I have been saying it for a while, and in many cases it is now too late, but it is worth reviewing your current situation in regard to interest rates, maximising revolving credit facilities and restructuring debt to put yourself in the best possible position. If you would like a chat, please fill out our online form here and we will be in touch.
Property Update Webinar
I recently participated in a webinar with John Rowe from Gilligan Rowe & Associates and Mark Honeybone from Property Ventures. We commented on the current state of the market and issues that you need to be aware of. To view a recording of this webinar, please click HERE.To contact Kris Pedersen Mortgages, please fill out this online form.
This letter is to express my appreciation for the assistance and encouragement of both Anthony Lipscombe and particularly John Heaslip over the last financial year. The period since activating my trading trust has been one of considerable stress, as well as personal development, as I embarked on this as a relative business neophyte with virtually no awareness of the contemporary requirements of running a business, particularly the financial records aspect. During much of this period I have therefore felt considerable out of my depth. However I have been lucky enough to have had the benefit of the advice and support of John Heaslip in rationalizing what was a fairly chaotic set of records of the first year property trading. I am able to say that John in particular, has been unstinting in his attention to my needs and has done so in a manner which has never alluded to my extremely rudimentary grasp of managing a business, or even of being unable to set out a spread sheet properly. The result of the above guidance is that now, although my trading trust would still not be able to operate without the advice of GRA, I do least feel a sense of satisfaction that I have got to my present point without major disaster and that my property trust does now have some kind of firmer basis for any future activities - Name withheld by request
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