Consumer Watch: Value rise beats loan bar

Property investor Kesh Maharaj want to use equity in his revalued properties to buy more of them. Photo / Doug Sherring

Boosting equity is now high priority for homeowners seeking bank cash

Homeowners hoping to bargain with their banks are calling on valuers for assistance.

Increasing numbers of Aucklanders who bought their homes with small deposits are having them revalued to find out if recent price increases have been enough to give them more equity. The city's house prices are increasing at a rate of about 13 per cent year-on-year.

Having more equity has become more desirable since the Reserve Bank introduced new limits this month on the amount of lending banks can do to low-deposit borrowers.

Only one in 10 of banks' new loans can be made to borrowers with equity or a deposit of less than 20 per cent of the home's value.

That means people with more equity can negotiate better deals.

David Clark, the chief executive of the Property Institute, which represents registered valuers, said the change had been noticeable.

He said there was demand from people who wanted valuations so they could show they no longer needed to be paying a low-equity premium, an extra fee charged by Westpac and BNZ on top of normal interest rates while the loan is above 80 per cent of the property's value.

Other people wanted to refinance with another bank. A higher valuation would make it easier for them to do that.

Other people had seen prices rise in the city and thought their own property's value might have increased enough to take out some of their equity and use it to buy a rental investment.

One such investor is Kesh Maharaj, who said having his existing properties revalued would make him more attractive to banks, which would then be keener to lend money to invest in another property if the right one came up. "I want to get the capacity lined up so that if an opportunity comes up, I can take it," he said.

ANZ and KiwiSaver also offer better interest rates - about half a percentage point less on fixed rate - to those who can prove they have more than 20 per cent equity in their properties.

Auckland Property Investors Association president David Whitburn said the demand for valuers was so strong that people who had been used to getting a valuer to a property within a couple of days were waiting up to three weeks. John Bolton, of mortgage broker Squirrel, said there was a good chance that many properties had now increased in value enough that people who bought a year ago would have more than 20 per cent equity, although the loan restrictions could slow future growth.

He said that if people were thinking about refinancing, they might be able to get the bank to contribute to the valuation cost. "Over the past few years it has simply been a matter of owning a property and the price increases coming through. At 13 per cent year-on-year price increases it only took 12 months. "[Now] it will be about making improvements to the property to get sweat equity into it and also paying off debt. If housing price growth rate reduces to around 6 per cent next year, you'd be looking at at least two to three years to get there by doing nothing."

BNZ said it did not keep data on the number of people who used a valuation to get rid of their low equity premiums. Westpac did not comment.