Category: News

BUILD TO RENT, WHAT IS IT AND WHY WE SHOULD CONSIDER IT?

Rob Collins gives his observations as a property finance expert returning to the New Zealand market after 15 years in the UK.

I have been in the property finance sector for 25 years and for the last 15 years have been operating as an advisor in the UK market. Having recently returned to NZ I have noted that there are many similarities between the UK and NZ markets, but I wanted to highlight some of the differences that I have noticed with reference to the build to rent concept.

The build-to-rent banner encompasses a couple of different models – my first experiences with the idea was a few years ago when the UK suffered a soft property market following the Brexit vote. I had several clients that had finished residential development projects only to find that buyers were wary of purchasing when it looked like prices may be falling. However, the underlying demand for accommodation was still relatively strong and these clients became accidental landlords as they found that the units were easier to rent than to sell. You may be wondering what happened to all the pre-sold units? Well, in the UK a presale condition is virtually unheard of on a development loan, but that can be the subject of a separate article.

These accidental landlords found that they could refinance their development funding onto a much cheaper residential investment mortgage and even extract some of their equity to roll into the next project. Additionally, they had a cash flow positive rent roll after interest costs. It may not have been their first plan, but many clients liked the idea of building a long-term portfolio and the develop to sell model became replaced with the develop to rent model, albeit that most of the units being developed were standard, self-contained properties that could be sold if necessary.

The second strand of the build to rent model is a more specialized co-living version – here properties are developed specifically to be rented as a block and any sale is limited to selling as one block.
The properties can range from the smaller end where large houses may be converted / extended to provide self-contained bedrooms (sometimes with en suite), but with other facilities such as the kitchen and living space being shared and communal. At the larger end, the co-living properties being developed will be hotel-like in size and scope with some having communal areas that include bars, restaurants, and even cinemas. For the developer/investor, the goal is the same – to produce a property asset that generates a greater yield than standard residential property. For the occupants, co-living should provide a more private arrangement than a traditional house share, but with lower costs and more flexibility than a traditional purchase or rental.

I am sure that these ideas could help in the NZ housing market by providing a wider range of options for renters, but I am afraid that there are some impediments, and they really revolve around the funding (albeit the GST treatment of property here in NZ is another contributing factor). Remember my accidental landlord clients above – in the UK we were able to get them 75% LVR funding at prime rates for up to 20 units. Above 20 units you moved into the commercial lenders, but the rate premium was normally only 50 to 100 basis points as the capital weighting on the lenders’ balance sheets was lower for residential property. This means that UK borrowers can access higher loan-to-value ratios and lower pricing compared to NZ.

From my conversations with the banks here there are no comparable products available, and the non-bank market is currently only offering short-term finance. This means that the build to rent model in NZ is only going to be possible for groups that have large equity resources to deploy or the ability to arrange alternate funding arrangements such as a syndication model. For the standard developer or investor, the current financing options will keep them locked into the traditional process of develop to sell and to invest in single unit rentals.

The Financial Advice regulations are changing – find out what this means for you.

From 15th March 2021 the way we provide advice, and what information we need to disclose to you is changing. The Financial Services Legislation Amendment Act 2019 introduces a range of new duties that will apply to those who give regulated financial advice. This requires a person who gives regulated financial advice to make specified information available in the prescribed manner when required to do so by the regulations.

Here’s a quick overview of what we will need to provide you with after 15th March:

  1. To help you choose the correct financial advice provider, we must display additional information on our website, which will also be available on request. The information to be disclosed includes our licence status, the types of products we advise on, the fees that may be payable, and any commissions or conflicts of interest that may apply.
  2. Once we know the scope of the advice we are providing you with, we are required to disclose material limitations on the scope of our advice, disciplinary history of the adviser giving advice (if any), and any fees, commissions or conflicts of interest that may apply. This is to help you decide whether to seek, obtain or act on advice given by our advisers.
  3. Once our advisers provide you with their advice, we need to disclose any changes to the information referred to in 2 above along with confirmation of fees payable and applicable commissions and conflicts of interest, and the legal duties we need to provide to you. The purpose of this disclosure is to help you decide whether to act on the advice our advisers give.
  4. If you have a problem, concern, or complaint about any part of our service, we need to provide you with information about our internal complaints handling process and how to access our external dispute resolution scheme.

Our advisers are happy to talk through any questions you may have around these changes, or if you prefer you can also read more about the new financial regime here.

Covid-19 Home Loan Assistance

How the banks can help

covid-19 bank assistance

Here’s how the banks are helping those financially effected by loss of income during the Covid-19 pandemic

Talk to your mortgage adviser before you get in touch with your bank to get better clarity and to better prepare yourself. Think about your cash flow budget for the months ahead and consider your options well. We are here to help and every individual has unique circumstances. It’s always good to talk through your needs and the options first.

Please note (as at 31/03/2020):

  • At this stage Eightfold as mortgage advisers can assist with applications on behalf of ANZ, BNZ and Westpac clients, with the other banks asking clients to go direct as detailed below. We are still here to talk to anyone, anytime regardless of bank.
  • ANZ has now finalised its 6 month payment deferral program, and you can apply for this via your Eightfold adviser.
  • ANZ is working on a simplified process for clients going on to interest only and will provide more detail soon.  
  • Westpac now has a simplified process for clients going on to interest only.  

The Options

Eightfold published a blog on 23rd March which we have updated post the Government announcements around bank assistance. Read blog here.

We’ve cover the high-level communications from the banks below around Home Loans but you’ll also find help around personal and business loans on these pages.

ANZ will soon be able to offer home loan repayment deferrals, which will allow you to pause your repayments for up to 6 months (sometimes known as “mortgage repayment holidays”). 

Home loan repayment deferrals aren’t available just yet, but will be early next week. 

Click on the link below to see ANZ’s full information on home loan hardship and to book a call back from ANZ once they are ready to go. https://www.anz.co.nz/here-to-help/banking-updates/

ASB has assistance ready to go now. You can apply directly online under the two categories set out below.

If your income has been impacted by COVID-19:

  • Interest only repayments on home loans for up to 6 months
  • Mortgage repayment deferral for up to 6 months (interest will still be added to the loan, meaning your loan balance will increase)
  • Interest only and repayment deferral options for personal loan customers

If you have been impacted by any other COVID-19 related reason:

  • Interest only repayments on home loans for up to 3 months
  • Mortgage repayment deferral for up to 3 months (interest will still be added to the loan, meaning your loan balance will increase)
  • Interest only and repayment deferral options for personal loan customers

Click on the following link for full information about applying for support: https://www.asb.co.nz/page/covid-19.html#how-we-can-help-you

At BNZ you could be eligible for a home loan repayment deferral for up to six months, or ‘interest only’ payments for up to 12 months, if your income has been affected by COVID-19.

You can apply directly online through their application link. https://www.bnz.co.nz/contact/covid-19-update/covid19-home-loan-repayment-deferral

Click on the following link for full information about applying for support: https://www.bnz.co.nz/contact/covid-19-update#hl

Co-operative Bank as offering the following hardship services for those effected by Covid-19:

  • Defer your Home Loan repayments for up to six months with a repayment holiday.
  • Consider paying interest only on your Home Loan if your income is reduced.
  • Adjust your Home Loan or Personal Loan repayments down to the minimum amount.

Click on the following link for full information about applying for support: https://www.co-operativebank.co.nz/help/covid-19

If you’re an existing Kiwibank Home Loan customer and need relief from your home loan commitments they have several options available depending on your circumstances.

  1. Extension of home loan term – This temporary extension can be reduced back once income returns to normal
  2. Interest Only home loan payments – For a period up to six months
  3. Home loan repayment deferral – Full principle and interest deferral for up to six months.

Click on the following link for full information about applying for support: https://www.kiwibank.co.nz/contact-us/support-hub/coronavirus-updates/updates-products-and-services/#home-loans

In response to the Government’s announcement, TSB will be offering support to customers by: 

  • Offering ‘Interest Only’ payments for up to six months 
  • Offering a ‘Mortgage Payment Deferral’ for up to six months 

Click on the following link for full information about applying for support: https://www.tsb.co.nz/help/covid-19/mortgage-repayment-deferral

Deferred mortgage repayments are available for six months, as agreed by the Government and banks. This deferral includes principal and interest repayments and is sometimes known as a mortgage holiday. Any interest accrued during the deferral period will be added to your loan.

Requests a six month mortgage and personal loan repayment deferrals. You have several options:

  • If you have a mortgage advisor (broker) please contact them directly and they will be able to assist you. 
  • Alternatively, please call 0800 606 606 to speak to our contact centre.  We are experiencing high call volumes, so please call us next week if your repayment is not due in the next 5 days.
  • We are also working on an online application form that customers will be able to fill out themselves to apply for a deferral. This should be available in the near future. Please check back here regularly if you would like to use this form.

Request Interest Only:

We expect to have a similar simplified process available in the next few days and we will provide you with these details as soon as possible.

Click on the following link for full information about applying for support: https://www.westpac.co.nz/who-we-are/covid-19/financial-support/

Covid-19, Financial hardship and how to survive

Envato, Covid, Corona Virus, Corona

Financial Hardship – Home Loan Options (Updated 29th March)
 
With the Covid-19 Pandemic, many people are experiencing difficult times and uncertainty. This can include concerns around job security and accordingly the ability to continue to meet your home loan repayments during this time.
 
The following is meant as a general guide as to your home loan options. Clearly there is no guidance as to how long or how severely Covid-19 will impact us. Every person’s situation (and bank) is different so if you have specific questions, please contact us.

The banks have now followed the governments directive on the 24th March to offer borrowers a support package. The package will include a six month principal and interest payment holiday for mortgage holders and SME customers whose incomes have been affected by the economic disruption from COVID-19.

What are my Home Loan options?

  1. Change your repayments
    If you are paying more than the minimum amount, you can reduce your repayments back to the minimum amount immediately. This can usually be done through Internet Banking.  Remember, there may be a cost if you later decide to increase these repayments during the fixed rate period.
     
  2. Interest-only period
    This may be available temporarily where you can still show that you can service your home loan on a reduced household income. A full application will be required and accompanying documentation to support this request will also be required. Not all Banks are offering this option as yet.
     
  3. Mortgage repayment holiday
    This may be available for customers needing to take a break from your home loan repayments for a period of up to 3 months. The Bank will continue to charge interest during this period but will defer the payments (and interest) to the end of the holiday. Ultimately this adds an additional cost to the home loan but the short term cash flow benefit may assist. Importantly repayment holidays are generally for 90 days only so you need to consider whether now is the time to apply or not.

4. Mortgage repayment deferral (New, as per government announcement)

A Mortgage Payment Deferral allows you to take a break from making your contractual mortgage payment for up to six months. Interest will continue to be charged and will be added to your loan at each payment date. 

Please note that you’ll end up paying more over the life of the loan and you may face either increased future payments or a longer loan term, at the end of the payment deferral period. 

Insurance

If you have Mortgage Protection, Income Protection or Business Interruption Insurance then you should discuss this with your Insurance Broker.

We believe the Banks will need to be supportive during these times and we understand that they may be working on a Covid-19 customer assistance package at present.
 
From now on we at Eightfold will be working from home. We are also aware that the Banks are enacting their Back Up Plans which will also require some, if not all staff to work remotely. This will have a direct impact on turnaround times and we ask that you please be patient and bear with us during this time.
 
Please do not hesitate to contact us if you have any questions. We’re here to help,

from the team at Eightfold.

Translate »