Quick Points on an Expat New Zealand Mortgage
With one of the freest markets in the world, New Zealand makes it very simple for foreigners to purchase property in the country and get a mortgage. Below is a quick guide to what you need to know to finance your dream home on the kiwi island.
Categories of Foreigners
When bank’s assess non-citizens for mortgages in New Zealand, they parse them into three categories:
1: Permanent Residents – Those with the right to stay and work in NZ permanently are treated no differently than NZ citizens, and receive the same rates from banks. Loans can be as high as 95% LTV. However, laws designed to cool the growth of the country’s rapidly-inflating real estate market have made it more difficult for banks to lend at these rates, instead requiring the vast majority of bank loans to be at 80% LTV or lower, thereby requiring at least 20% as a downpayment. Moreover, for permanent residents, there are no restrictions on the types of properties or the amount of acreage you can purchase.
2: Work Permit – Those who only have a right to work in NZ are given less favorable mortgage terms, with a minimum of a 20% downpayment required, and many lenders requiring about a 50% deposit. However, for qualified buyers, if you shop around, you will likely be able to find rates closer to 20%. For those without permanent residency in NZ, restrictions apply to the sort of property you can purchase (discussed below).
3: Holiday Home Purchase – For those without a working permit or permanent residence, the rates for purchasing a mortgage are very similar to those who do have a work permit. You likely won’t find anyone able to offer an 80% LTV, but 50-70% LTV may well be expected. Similar restrictions apply to these types of mortgages as to those for work permit holders.
Property Buying Restrictions
As mentioned above, permanent residents have no restrictions on the types of properties they can buy, nor do citizens of NZ. However, those without permanent residency status are limited to purchasing homes on less than 12.5 acres of land in an unprotected area. If the land is near a protected area, such as an island or a nature reserve, those with less than permanent residency status are limited to a maximum of 1 acre.
Moreover, non-permanent residents purchasing farms or waterfront properties will also need a special government exemption, called an OIA Consent (Overseas Investment Act). OIA Consent applies to a number of properties designated as sensitive, so best to ask a NZ legal advisor to determine if a property is sensitive. However, if it’s just an urban or suburban property, this won’t be an issue.
Mortgage Amounts and Mortgage Rates
Unless you are in significant debt, most lenders will be able to provide you with financing worth 4.5 times your gross annual income. If both you and your spouse have secure employment, you may be able to get financing up to 5 times your gross annual income.
Mortgage rates vary between 4.55% and 6.09%, as evidenced below. Special Interest Rates are for a downpayment over 20%, while standard rates are for lower deposits.
|Type||Term||Special interest rate *||Standard interest rate|
|Fixed rates||6 months||– *||4.99% p.a.|
|1 year||4.55% p.a. *||5.05% p.a.|
|18 months||– *||5.15% p.a.|
|2 years||4.85% p.a. *||5.35% p.a.|
|3 years||– *||5.59% p.a.|
|4 years||– *||5.89% p.a.|
|5 years||– *||6.09% p.a.|
Variable rates depend on the condition of the market, but right now (July 19th, 2017) they are at 5.79%.
In order to apply for a mortgage in NZ, you’ll need similar paperwork to what you’ll need for most other developed countries. This includes:
- Proof of ID such as a passport and driver’s licence
- proof of residency status
- proof of income, such as pay slips or bank statements
The application process varies from bank to bank but an approval can be obtained fairly quickly, usually within 2 weeks. The vast majority of house purchases in New Zealand are completed within 6 weeks.
Taxes and Fees
Rental income is included in the normal income tax, which is a progressive tax that varies between 10.5% and 33%. New Zealand has no capital gains tax, no inheritance tax, and no gift tax. There are local taxes on properties levied by municipalities.
Real estate buying and transaction costs are low, between 4.23% and 4.80%. There are no stamp duties on newly purchased properties. The buyer pays for registration fees while the seller pays the agent’s commision, and each party pays for their own lawyers.
New Zealand is one of the most unique and beautiful places in the world to own property. Moreover, with its free economy and relatively low taxes, it is an excellent place to live and do business. Owning a home in New Zealand is an excellent option for a multitude of reasons. For all the help you’ll need in getting financing to purchase your property, contact CrossBorder for assistance every step of the way, from initial interest to final signature.