Spread borrowing?
Question from Edith updated on 23rd May 2013:
I live overseas and own seven rental properties in New Zealand. Last year I approached the ASB to lend me some money for another rental property purchase, but I was declined in case of tenant default (even though I have sufficient additional income to make repayments). I note your advice about not having all your eggs in one basket and admit that all my properties are with the ASB. Two are paid off and act as security for the other five. Now I am wondering just how much security the ASB actually needs and whether I am in a position to ask the ASB to release one of the paid off properties, so that I can approach another bank to use it as security for another purchase. Have you any idea of the current percentages/criteria that the banks use?
Our expert Kris Pedersen responded:
There are a few points to raise here. Firstly the difference in criteria between banks when lending to borrowers who are domiciled overseas is large. ASB did change their criteria in regards to this around September so if your request was before then you may have more luck now. Note also that the way you will calculate serviceability is likely to be very different to the way the bank is doing it. You will look at "real numbers" such as income in and expenses out whereas the banks tend to slice off 25% of the rental income and work the mortgage serviceability off higher interest rates and on a principle and interest basis even if you are on interest only. The larger your portfolio the larger the gap between your numbers and the way the bank looks at them. Keep in mind also if you are at business borrowing level they calculate this even more harshly. Note that bankers will often look at your situation and believe there is not sufficient equity available as they may be looking at the GV's for your portfolio whereas often turn market value can be significantly higher. Your situation sounds like a case where you need to get a proper understanding of how your portfolio numbers are being looked at to ascertain why you are being declined so you can understand what options you have moving forward.
Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz
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