New Zealand Mortgage Market

Introduction

New Zealand’s housing market is still strong, although interest rates are increasing.  Nationwide median house prices rose 5.4% over 2014.  Housing in New Zealand is now really expensive for a country with such a small population relative to its landmass.  Auckland has the country’s most expensive housing, and properties are selling the fastest there as well.  The number of property sales was up 24.2% in December 2014 from the same month last year.  One reason housing prices are increasing so strongly is because of the rapid expansion of New Zealand’s economy.  Other reasons include low interest rates (although an increase in rates is expected in the near future) and high immigration in the past few years.

Property Rights in New Zealand

There are no restrictions on non-residents purchasing property in New Zealand.  Although it is important to note that owning property in New Zealand does not give you the right to live there permanently.  If the property investment is less than NZ$10M than no official clearance is needed.  Otherwise, authorization from the Overseas Investment Office is required.  There are also requirements for sensitive areas of property such as agricultural land, islands, and land containing reserves and/or lakes.

In order to purchase property in New Zealand, one must complete the following steps:

  1. The seller must obtain a Land Information Memorandum from the local authorities. This can take up to 10 days.

  2. The seller must register the title through the Land Information New Zealand. You may do so through a conveyancer/lawyer acting as your registrar, or through manual registration with the Land Titles Office.

  3. All documents must be checked by the conveyancer before registration. Documentation includes personal identification for both parties, written authority for the conveyancer to register the property, and the signed transfer of property.

Fees associated with property purchase in New Zealand are as follows: registration fee (NZD80), conveyancer fee (NZD1500), and a real estate’s agent fee, which is negotiable and ranging from 3.5-4% plus 15% GST of purchase price which is typically paid by the seller.

Financing Options

Mortgages are available in both fixed rate and variable rate structures.

Table Mortgages

The most common type of home loan and is available for up to 30 years with most lenders.  Most early repayments pay off the interest portion of the loan while most of the later payments pay off the principal.  Application fees range from NZD0-NZD100 but most lenders charge around NZD200-400.

Revolving Credit Loan

Revolving credit loans work like a large overdraft.  Your pay goes straight into the account and bills are paid out of the account when they’re due.  You can make lump sum repayments and re-draw money up to your limit.  Some revolving credit mortgages gradually reduce the credit limit to help you pay off the mortgage.  Application fees for a revolving credit mortgages can be up to NZD500. There can also be fees for banking transactions you do through the account.

Reducing Loan (Straight Line Mortgage)

Rare in New Zealand, straight line mortgages allow you to repay the same amount of principal with each repayment but with a reducing amount of interest each time.  Payments start high, but reduce over time.  Fees are similar to table loans.

Interest Only

With an interest only loan, you pay the interest-only part of your repayments, not the principal, so the payments are lower.  Some borrowers take out an interest only loan for a year or two and then switch to a table loan.  Fees are similar to table loans. 

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