The Current Financial Position – December 2019
Changes To Standard Sale & Purchase Agreements
Almost any Sale & Purchase Agreement for property will contain a clause pertaining to the buyer’s finance. Basically, this clause gives buyers the freedom to pull out of an agreement if they suddenly find that they cannot obtain finance from their lender.
This is a great safeguard for anyone that has to borrow money to complete their property purchase. Unfortunately, for some buyers, it has also become an easy out if they change their mind about the property.
Until now, the buyer’s word was sufficient proof that they could not obtain finance. But, in the recently launched tenth edition of the REINZ/ADLS Agreement for Sale and Purchase, this will not be able to happen.
Buyers may need to show a letter from their bank stating that the finance has been declined. If they cannot produce the letter or reasonable evidence they have tried to obtain finance, then they could be in trouble.
“According to Bindi Norwell, chief executive of REINZ, this means borrowers could be forced to complete a purchase even without finance, posing a danger to any buyer entering into a sale and purchase agreement.
Norwell said: “This is a significant change to the sale and purchase agreement and it’s imperative that consumers understand the implications as if they can’t provide evidence they can’t raise the finance, they could be forced to proceed with the purchase or face other legal action by the vendor.” [source]
To prevent this from happening, it is strongly advised to seek financial advice from a mortgage broker (like the team here at Mortgage Suite) before entering into any agreement.
Why Do Interest Rates Continue To Fall?
“On Friday, BNZ cut two of its classic home loan rates, slashing its one year to 3.49% for owner-occupiers, and 3.74% for investors. Its 18-month rate falls to 3.39% for owner-occupiers, and 3.64% for investors, representing the second cheapest in the market behind Chinese lender ICBC.
BNZ’s moves come after Westpac slashed its one year rate to 3.39%, joined by Kiwibank and ASB.” [source]
But why do the rates continue to drop?
When the Reserve Bank chose to put the OCR on hold in November, they were hoping it would result in increased mortgage rates to borrowers. The wholesale rates went up, but the lenders are continuing to compete on price.
Of course, if one lender does it, then the others have to follow suit or they risk losing business. But, just how low can these rates go? We will need to watch this space to see what happens going forward.
LVR Limits Remain The Same
While lots of things have been changing in the financial world, LVR limits are not one of them. The Reserve Bank has decided that the current limits will remain.
“LVR limits have been “successful in reducing the more excessive household mortgage lending”, The Reserve Bank said. The central bank added LVR rules have improved the resilience of banks to a deterioration in economic conditions.
Yet fears of excessive-high LVR lending have made the central bank decide against loosening rules from current levels.” [source]
The Reserve Bank were fearful that borrowers may take on more debt than they can handle, should the historically low-interest rates begin to climb back up again.
“Current LVR rules will remain in place for the medium term. Up to 20% of loans to owner-occupiers can have deposits of less than 20%, and up to 5% of home loans to investors can have a deposit of less than 30%.” [source]
So, what does it all mean? With all the changes taking place in the market, it is best to speak to a financial adviser to see exactly where you stand. The team here at Mortgage Suite can help you to work out what is the best option for your personal circumstances.
Get in touch with us today for a free, no-obligation chat.