Property management involves a lot of risk, and at apm our focus is on risk reduction strategies for our owners. Part of this service includes hosting property investment seminars on topics of interest to our clients including lending for residential investment.

At our recent property investment seminar ‘Understanding Property Investment and Recent Legislation Changes’, we were joined by Mortgage Advisors Linda Eagleton of Loan Market, and Adam Day of Personalised Mortgages. They discussed lending requirements for residential and commercial properties. James Bangerter, apm Southern Area Commercial Manager then outlined the differences between management and ownership of residential and commercial property.

Below are some key takeaways from Linda’s chat on lending for residential investment properties. You can soon learn more from Adam’s and James’ topics on our website here.

*Disclaimer – The below information is general and nothing in this article is to be taken as individual financial advice*

Loan-to-Value Ratio (LVR) Restrictions

When purchasing a residential property, a 20% deposit is needed for an Owner Occupier (some First Home Buyers can provide less). However those buying an investment property need a 30% deposit. There are some exemptions for new build properties, or for Dollar-for-Dollar refinances (e.g. when changing loans from one bank to another) so chat to a Mortgage Advisor to see what’s best for your portfolio.

Debt-to-Income (DTI) Restrictions

Your DTI ratio is calculated by dividing your total debt by your total gross income. From 1 July 2024 the Reserve Bank of NZ set out new rules for DTI restrictions applicable to new loans for both investors and owner occupiers. If you are a property investor, you’ll generally need a DTI ratio of 7 or lower, meaning an investor can borrow up to 7x gross (before tax) income.

At present (August 2024), due to their servicing rules the banks are currently lending less than the DTI ratio. However, as interest rates fall, banks usually can lend more money to you. The DTI threshold is there to protect banks lending too much when interest rates are very low. At this stage the DTI has no impact on lending capacity, but it may do in the future as interest rates continue to fall.

Interest Only

Property investment loans are commonly on interest only as the tax can be claimed. Work with your Mortgage Advisor to determine the best direction for your portfolio, especially if you still have a loan for your owner occupier property.

Split Banking

Having different property loans with different banks is common if you have multiple residential property investments. This reduces the risk of having all your property loans tied to one bank and allows for flexibility over lending and equity options. This becomes especially important when you go to sell a property, if they are split across multiple banks, the bank will have less (or no) say in what you chose to do with the net sale proceeds.

Loan Servicing Assessments

Banks are looking at multiple options when it comes to servicing loan payments, these can include: Rental Income or Boarder Income, Air BnB Income (though need to be aware of the tax and the expenses for running the Air BnB), Salaries, Self Employed Income, Fixed Expenses, Body Corporate Fees, Rates, and Servicing Rates (often a higher percentage than the mortgage rate and varies between the banks. This is what they use to test if you can afford loan repayments if the market changes).

Mortgage Advisors offer independent advice whilst building a long-term relationship to help with your property journey. Using a Mortgage Advisor/Broker is a free service, and they are able to access and negotiate loans across many different lenders to tailor to your needs. Thanks to Linda Eagleton of Loan Market for joining us at our recent seminar. If you wish to discuss rental property investment, or a property purchase for yourself, then contact Linda and her team today.