One of the country’s biggest non-bank lenders is going against the grain, and offering property investors the chance to lock in long-term, interest only loans.
Rising interest rates and economic uncertainty have prompted banks to ask many investor customers to move from interest-only payments to more expensive principal-and-interest payments on their mortgages.
But property lender Resimac had taken a different approach, and announced an interest-only mortgage with a 20-year term, only available to professional investors.
The interest-only option was available for up to 50% of a property’s value, while principal and interest repayments would be required for the portion of the loan above that.
Investors who took up the loan would need a 40% deposit for an existing building, or a 30% for a new build. The loan had an 1.5% establishment fee, which could be added to the loan amount.
Resimac general manager Luke Jackson said the loan was a first for investors in New Zealand, and would help them maximise the return on their investments.
Savvy investors had a long-term lens when assessing property opportunities, but there was a significant gap in the market for loan products that accommodated this future focus, he said.
“Our new loan has been purpose-built to help investors seize opportunities now and build an investment portfolio in a cashflow-effective manner.”
Earlier this year when banks were struggling with new responsible lending rules, Resimac launched a faster pre-approvals option for broker-introduced customers, which bypassed the bank statement scrutiny.
Jackson said it allowed them to comply with the rules, without “nitpicking over how many coffees” home loan borrowers had.
Loan Market mortgage adviser Bruce Patten said while banks had tightened up on interest-only loans, some banks still allowed investors to extend their interest-only loans if they were paying debt down in their broader portfolio.
But it was necessary for the investor to make a full application each time, and so a loan where interest-only payments were locked in for 20 years would be very appealing to some, he said.
“Interest-only loans are not as beneficial these days due to changes to investor tax policies. They mean you are not reducing your tax burden as you are not paying down the debt.”
It was likely to appeal to investors with multiple properties who wanted three or four of them on interest-only long-term, while leaving the rest with the banks on principal-and-interest, Patten said.
Traditionally, non-bank lenders had higher interest rates than the banks. Resimac currently has a variable rate of 6.59% and a two-year fixed rate of 6.94% for specialist loans with LVRs of 65% to 70%.
In June, CoreLogic figures revealed the portion of new home loans being written by the largest finance companies, which included Resimac, had doubled since 2020.