Mortgage Guide

Mortgage Guide

Can I Get A Mortgage?
There are many banks and lenders in New Zealand, all of whom are keen to write loans. If you are eligible to work or live in New Zealand and have a regular income, you will almost certainly be able to get a mortgage. Banks are very efficient and your mortgage funds will be made available quickly.

For lending purposes, banks split people from overseas into three categories:

Mortgage Category 1 - Permanent Residence
Banks will treat as if you were a New Zealand citizen. This includes lending you up to 95% (or more) of the value of the property you are buying.

Mortgage Category 2 - Work Permit
Banks will require more financial commitment from you than they would from a permanent resident. This varies from the most lenient lenders who require you fund at least 20% of the purchase price to lenders with stricter rules who will require you fund at least 50% of the purchase price. The message is that if you shop around, you should be able to find a loan to fund 80% of the price of your dream home.

Mortgage Category 3 - Holiday Homes
Most banks will apply very similar rules to overseas people on holiday to the lending rules applied to people in Category 2. Some may be a little stricter.

What Can I Buy?
If you are a permanent resident there are no restrictions on the home you can buy in New Zealand, apart from your own finances.

If you have less than permanent residence, you are limited to buying a home on less than 5 hectares (12.5 acres) of land. You can also buy undeveloped land up to 5 hectares.

If the land is on or next to a sensitive area, such as an island or reserve, overseas buyers and people with work permits are limited to buying less than 0.4 hectares (1 acre) of land.

How Much Can I Borrow?
This varies from lender to lender. A general rule of thumb is that, provided you have no other significant debts, lenders will finance mortgages of around four and a half times your gross household income. Some lenders will finance mortgages of five times gross joint income for couples, provided both of you are in employment.

What Sort of Mortgage Can I Get?
Most New Zealand borrowers have table mortgages. Repayments do not change over the lifetime of this type of loan. In the first few years you pay mainly interest. As the years pass, your repayments pay back more of the loan principal.

Another possibility to consider is a reducing mortgage. With this type of mortgage, you repay the same amount of principal with each payment so that interest charges fall with time, as do your payments.

Whether you take a table or reducing mortgage, you will also be able to choose between a variable or fixed rate mortgage.

With a variable-rate mortgage your interest rate will change whenever New Zealand's central bank raises or lowers interest rates. Or you can fix the rate for somewhere between 1 and 5 years. At the end of this term, you can fix it again or move onto a variable rate package. Some borrowers take a mixture of variable and fixed rate mortgages.

How Can I Get the Best Deal from a Lender?
The easiest way to get movement on a better deal is to remind the bank that there are other lenders out there - this can be achieved by pointing to a lower interest rates offered by another lender and asking the bank to beat their competitor's rate. Certainly you should try to get the establishment / application fee waived by pointing out that a competitor has already agreed to waive this fee for you. (An establishment fee is a one-off fee charged by banks at the beginning of the mortgage term to cover their costs in establishing the mortgage.