What are you doing with your mortgages in 2018?
I’ve noticed most people starting this year with a bit of optimism. However, it’s hard to say how much of that is based around fundamentals, and how much is more attributable to the amazing weather we have been having and a decent summer break.
From our side of the Finance Desk, it has actually been a busy start to the year with quite a few purchasers signing up new properties over the break, and general rhetoric has suggested that well-presented properties have been moving relatively quickly. Most banks have also been in contact saying that they are open for business in the above 80% LVR space, which is an indication that the slight relaxation in this area prior to Christmas may already be kicking in. Lenders have also been in touch about the LVR for investment property lending increasing to 65% (which came into force on 1 January 2018).
I think it is important to be prudent, however. While there may be some positive signs, we aren’t going to see the rampant capital growth of the 2012–2016 period anytime soon (and the RBNZ wouldn’t allow it to happen). In all likelihood this activity in the market has been caused by some pent-up demand which was a flow on from the lack of listings around the election. Some agents I have spoken to expect to see a fair bit of stock coming on over the next couple of months. How that plays out in regards to eventual selling prices, and also days to sell, will give a much better indication as to where things are at.
Whether you are planning to participate or sit on the sidelines, I would say that with the investment LVR increase in place, now is a great time to review your situation and look to restructure lending. It makes sense to hold as much debt against your rentals as possible while also increasing the amount of equity you hold in your personal residence. We saw many clients over the last 12 months who didn’t have the equity to complete maintenance jobs or have enough to raise another deposit for the next purchase, and while this is a relatively small change, it may make the difference. The top of a cycle (which is where we are now) is a good time to potentially move on poorly performing properties or sort out deferred maintenance issues to assist in longer tenure of tenancies and overall cash flow. With legislation changes such as the Healthy Homes Bill, this isn’t a market in which you want to have rental properties that don’t meet legal requirements.
If you are looking to purchase, the old adage of “you make your money when you buy” is very true in the current market, and it’s important to have buying rules and stick to them. This market should be in your favour for some time to come. Being ready to buy is paramount here, so make sure you are preapproved and ready to go.
If you would like to have a discussion about preapproval, restructuring, topping up or anything else to do with your finances, please touch base by filling out the form here
and we’ll arrange a time to chat.
Best wishes for the year!!