It probably comes as no surprise that the latest research from the Real Estate Institute of New Zealand (REINZ) shows house prices are currently on the decline. But what should also come as no surprise is how we are managing this within Southern Cross Partner’s investment.
Prices across the country hit their peak around November last year, with the median house price sitting at $1.5 million, and since then have begun to soften.
However, compared to June 2021 house prices have still increased nationally by 4.2% from $816,000 to $850,000.
The median price in Auckland from June 2021 to June 2022 increased 0.5% from, the Canterbury region increased by 22.1%, Waikato had an annual increase of 14.3%, with Wellington experiencing a median house price decline of 4.2% from $885,000 to $848,000.
So, what impact do these conflicting numbers have on how we lend at Southern Cross Partners?
Luckily for us, we’re specialist lenders who know what types of loans work for us. This means that regardless of the state of the market our core strategies remain the same.
First and foremost, we’re conservative lenders.
That means we use conservative loan-to-value ratios (LVR). Where a bank generally lends on an 80% LVR, meaning the borrower only needs a 20% deposit or equity, we like to lend at a 65% -70% LVR meaning we require a larger deposit or equity portion.
This allows us some room to move in the case of any headwinds with a borrower, and with a decent chunk of equity in the property we know the borrower is committed too.
Being conservative lenders also means accepting tighter methods to value property. Valuations dictate what a property’s worth and therefore how much we’re willing to lend the borrower. When faced with two different valuations, we always choose the one that gives us the lowest value and lend on that.
We use a range of different valuation methods but prefer a registered valuation (RV) or comparative market analysis (CMA). In some circumstances we will also accept a sale and purchase agreement or real estate appraisal. With the quickly moving market we require a recent valuation to give us the most accurate data.
Our investor portal always has this information available to help inform your investment decisions. If you have further questions about any specific opportunities or want to further understand how house prices can impact our loans, please get in touch with our friendly investor team.