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New Zealand - Mortgages and Other Financial Issues
Expats will fall into one of three categories when applying for a mortgage. Category 1 is for those who have achieved permanent residency and this will give you the same rights with the banks as New Zealand citizens. The loan can be up to 95% of the value of the property although it is possible to get a loan for more. Category 2 is for those who simply have a work permit. In this category you will be asked for a larger deposit, usually a minimum of 20% of the purchase price, although there are some banks which may ask for as much as 50%. Category 3 is for those who purchase holiday homes but have no residency right. The rules for this category are similar to those for category 2 although some banks may be even stricter and there are one or two banks who will insist on measures such as opening an account with them and depositing a minimum amount.
The amount that you are permitted to borrow can vary a great deal from bank to bank. Most will lend around 4.5 times the amount of the gross household income, but this may be less if you have other debt and other banks will allow a loan of 5 times the household income if both partners are in full-time employment and the combined earnings are considered to be enough to cover the repayments.
The most frequently used type of mortgage is a table mortgage. This means that you pay the same amount each month for the entire life of the loan, so for the first few years the monies you are paying are covering interest. A reducing mortgage is one that pays off part of the main loan as well as the interest right from the beginning so the amount of interest you need to pay will reduce as you make payments and payment amounts can fall. With both types of mortgage you can choose between a fixed interest rate or a variable rate.
Making the application for a mortgage is very similar to the process in the UK and the US. Applicants will need to provide proof of ID such as a passport and driver’s licence, proof of residency status if required and proof of income. This could be in the form of 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.
Those who purchase a house will also have to pay an annual tax on the property levied by the local authority. This covers local services such as refuse collection and policing for the area and will vary according to the area that you are living in. If you purchase a house part-way through the financial year you will receive a pro-rata bill.
There is no inheritance tax in New Zealand and gift tax will depend on the type of gift, so may not apply in the case of a house purchase unless the buyer has received the monies for the purchase from a third party. The monies which a home owner may earn from renting out a property is considered to be income so is calculated under personal income tax unless the owner has a number of properties and runs this as a full-time business.
The bank will expect you to have buildings insurance to cover the cost of repairs to the building or rebuilding in the event of a disaster. Contents insurance is not considered to be essential for a mortgage company although it is advisable to protect your belongings. As in the UK and the US it is usually more cost effective to purchase the two together as a combined policy.
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