Mortgage products of the future

William Cairns of mortgage provider Cairns Lockie has been crystal ball-gazing lately about what further innovations might be expected in the market.

One product he expects to hit New Zealand within the next couple of years is a loan for up to or even more than 100% of the value of owner occupied residential properties.

Loans are available in the US for greater than 100% of value, but only for refinancing.

Already, PMI is willing to approve loans in Australia for up to 97% of a property’s value, Cairns says. But not anyone can get such loans.

Particularly with the Australian market looking distinctly bubble-like – Sydney house prices have gone up 70% in the last three years – "it’s very, very risky," Cairns says.

"It’s only applicable to borrowers who have an impeccable credit record and a good job." Lenders are targeting the 28 to 35 year olds returning from overseas with professional qualifications such as accountants and lawyers, "people who’s incomes are likely to rise and who are very unlikely to default."

"You’re not going to see a 50 year old getting this sort of deal," he says.

Such loans are likely to be less risky in New Zealand. Even in the frothiest market, Auckland, the median house price in September was only 13.8% higher than three years ago with most of that increase, 9.6%, occurring in the last year.

At the other end of the spectrum, Cairns, who is also an Auckland City Councillor, wonders whether the government might switch from paying accommodation supplements to providing some form of mortgage assistance.

That’s reminiscent of the old State Advances Corporation which allowed families to capitalise their family benefits and provided low interest rate loans.

Possibly, the government could develop a formula for providing deposits for those who can’t afford to save, but Cairns hopes it won’t follow Australia’s example. Australia has been providing housing subsidies of A$14,000 to first-home buyers, since reduced to A$7,000.

"That’s a stupid thing because they give it to everybody. All that does is stick up the price of housing by A$14,000."