Navigating New Zealand Mortgages: Things to keep in mind

If you're considering the leap into New Zealand's property market, you're probably wondering about the ins and outs of securing a mortgage in this stunning part of the world. In this article, we'll provide you with a thorough understanding of how mortgages work, who's eligible for various types of loans, and the lowdown on interest rates and deposit requirements.

Lenders typically categorize potential buyers into two groups, which determine the specific criteria you need to meet in order to obtain a loan.

Mortgage Category One: Permanent Residents.

In this case, your bank or lender will offer you the same terms as New Zealanders, allowing you to borrow up to 95 percent of the property value.

Mortgage Category Two: Work Permit.

If you possess a work permit in New Zealand and are on the path to becoming a permanent resident, you can still secure a mortgage. However, you will be required to make a larger initial payment to demonstrate your financial commitment to the country. With some shopping around, you should be able to secure a loan of 70-80 percent of the purchase price, although certain lenders may request a deposit of up to 50 percent.

What are the documentation requirements?

To secure a mortgage for purchasing property in New Zealand, you will need to furnish the following documentation:

1. Identification: Provide a copy of your passport and visa, if you are a Permanent Resident.

2. Evidence of Income: Depending on your employment status, you may need to provide one or more of the following:

•  A recent payslip (if it includes your annual salary).
•  Three of your most recent payslips.
•  A letter from your employer confirming your employment duration and income.
•  Two years' financial accounts prepared by a registered chartered accountant (typically for the self-employed).
•  A tax assessment from your local tax authority for the most recent year.

Keep in mind that if you are self-employed, securing a mortgage can be more challenging compared to being employed by a New Zealand company. While it's not impossible, it will require comprehensive proof of your financial status and income stability. The more evidence you can provide of your credit history and your ability to repay loans, the better. If buying property in New Zealand is on your horizon, start gathering this information sooner rather than later.

3. Proof of Deposit: Provide account statements or deposit certificates to demonstrate your deposit.

Given that you are seeking credit in a country where you may not yet have established credit history, it's beneficial to present as much evidence of your financial stability as possible. We recommend preparing the following documentation to present to banks or mortgage lenders:

• Bank statements covering at least three months to illustrate your financial history comprehensively.
• Loan statements, if applicable, to demonstrate your history of regular repayments in your home country.
• Proof of all income sources, including income from employment, international income (such as rental payments from property in the UK), and income generated from assets.
• Documentation proving ownership of property or investments that yield income, as this can serve as strong evidence of your available capital for repaying the loan.

What are the associated expenses of a mortgage in New Zealand?

The amount you need to deposit depends on the property's price. For instance, if your lender has approved a 70% mortgage for a property valued at NZ$500,000, you will need an initial deposit of $150,000. Generally, a larger deposit results in lower interest rates. Loans above 80% of the property price typically incur higher interest rates. Additionally, certain banks may charge a monthly fee for lenders mortgage insurance (or increase the interest rate to cover this). They may also require you to obtain income protection insurance, so you must consider this fee when budgeting for the property.

Things to keep in mind: