the 40% deposit requirement - can be it other property assets?

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rayonline

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#205282 7-Nov-2016 12:35

Just a curious question. My folks like many likes to talk about property. This 40% requirement is for investors, so one could be a mum and dad landlord of their own home and they may want/have a property that they rent out. This 40% figure does it has to be a cash deposit to the bank or can be other property landlords have that is passed to the bank as a gaurantee?

Cheers.

jjnz1

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#1664947 7-Nov-2016 12:49

To buy another property you generally remortgage the first to get the required deposit.

Is that what you are meaning?

rayonline

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#1664950 7-Nov-2016 12:52

They aren't buying but talking about it as a conversation. The first house might be paid off in full. So they may approach a broker or bank for a mortgage. They don't have 40% cash deposit but the first house is worth enough of the 40%. That possible? Or yeah but for conversational, let's say the first house isn't fully paid off, they remortgage it if it's 70% paid off, they have 40% there anyway, that possible?

darylblake

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#1664952 7-Nov-2016 12:53

I have heard advertisements on the radio saying we can get around it if you have a 20% deposit for an investment property. To be honest, now is not a good idea to do this in my honest opinion.

ubergeeknz

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Vocus

#1664953 7-Nov-2016 12:54

As I understand the new rules, because the LVR restriction is different for owner occupied and investment, one should be able to borrow against their own home to the point where their equity is 20%, and then use that money as a deposit for investment property (the amount would have to be 40% or more of the value of that property/properties).

Worth noting, LVR restriction does not apply to new builds...

edit: also worth noting - banks and other lenders can lend up to 10% of funds *outside* of the LVR rules. So exceptions can be made in some cases.

jjnz1

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#1664955 7-Nov-2016 12:56

Yep, you remortgage up to the hills... Basically the money can come from anywhere.

However buying an investment property in this climate is risky and requires some very serious thought/calculations...

rayonline

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#1664957 7-Nov-2016 12:58

Ok, so they need 20% equity from other house(s) and 20% deposit? Or could they have 5% deposit with 35% equity. Just saying. So if a landlord is not loaned up this 40% doesn't really apply to them.

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ubergeeknz

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Vocus

#1664964 7-Nov-2016 13:01

rayonline:

Ok, so they need 20% equity from other house(s) and 20% deposit? Or could they have 5% deposit with 35% equity. Just saying. So if a landlord is not loaned up this 40% doesn't really apply to them.

In terms of the rules, it doesn't matter -- all the money for the investment property could come from equity (if the bank is willing to lend it)

jjnz1

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#1664972 7-Nov-2016 13:09

The bank will require two things:

1. equity - enough equity or cash (if you don't have cash, they will turn your equity into cash IE: remortgage)

2. serviceability - can you afford to make the repayments? I believe they have a special formula for investment properties for this one.

Best you talk to a financial adviser. If they are good, they will show you all the tricks to make your money go further...

ajobbins

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#1664988 7-Nov-2016 13:33

rayonline:

Just a curious question. My folks like many likes to talk about property. This 40% requirement is for investors, so one could be a mum and dad landlord of their own home and they may want/have a property that they rent out. This 40% figure does it has to be a cash deposit to the bank or can be other property landlords have that is passed to the bank as a gaurantee?

Cheers.

The latter. They would need enough equity in the existing house to guarantee the 40% deposit, and if there is still a mortgage on the existing house, they would also need to stay above 20% equity in that property. In any case they also need to meet serviceability requirements. If the property is used as a rental, the bank will allow something in the order of 75% of the weekly rental amount to count, but they will need to be able to service the other 25% by other means (That's not to say they will actually have to do that, but they need to be able to).

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mattwnz

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#1664994 7-Nov-2016 13:47

There rates are 40 percent for a reason. I wouldn't get into that market without a 40 percent deposit. If there is a financial crisis which looks closer by the day considering how the share market appears to have dropped about 10 percent, then house prices potentially could crash. It was the cheap credit that was one reason house prices doubled in only a few years. That potentially could reverse and leave a lot of people exposed, including banks.

Wheelbarrow01

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Chorus

#1665025 7-Nov-2016 14:20

You don't have to remortgage an existing property to use the equity in it as a deposit on the next property.

I own a few properties and I started with a 25% cash deposit on the first one. Waited a year, then the 10% deposit I needed for the second property came in the form of equity in the first property. The second property was essentially 100% financed, but 90% of the loan was secured on the second property, while 10% of the loan was secured on the first property. The first property was not remortgaged.

Fast forward a few years and I have financed every subsequent property this way. Even the home I purchased for myself to live in last year was done so with no cash down - the 20% deposit I required at that time came from my equity built up in multiple other properties.

And for those who worry I stand to lose my shirt if prices drop, I point out that this was all done over a 15 year period, and I have retained an overall LVR of approximately 59% - that's loans vs the GV, not what I or the current market thinks they are worth (which is arguably a lot more).