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  1. #1

    Default Your thoughts on residential property converted to IP

    Hi all,

    Just want to get your thoughts on this matter.

    Currently, partner and I have residential property in Auckland bought in 2010. Afterwards, used its equity to buy outside Auckland in 2015. Both Properties under ANZ, cross collateralised.

    Major change is gonna happen to our family.

    1. Family will be moving out of Auckland (have had enough of the traffic, congestion) by January. Partner has found a job in Levin. My mother (bless her) asked us to stay with her. She has a separate house which we can live for as long as we want rent-free.

    2. Property in Auckland will be rented out by January. Currently, all properties are in ANZ fixed for two years. Residential prop is at LVR 50% and IP at 80%. But these are cross-collateralised so roughly LVR at 70%.


    I have few concerns, please do enlighten me:

    1. Will our residential property now be under 40% required IP deposit by the bank?
    2. What's the consequence (from a bank's POV) of not letting them know our Auckland property will be rented out? Should we even let the bank know about this change in situation?
    3. Technically speaking, we won't have any residential property by January, only 2 IPs, if we decide to purchase a house, will this be on a 20% required deposit? Or can we still have the Auckland property as 20% and the new house as 40%? Reason being, there's more equity in AKL property which we can use to buy another property.
    4. What are the ways I can get away from cross-collateralising my current 2 properties?

    Our goal: We want to buy more IPs in the future enough to fill our passive income goal.

    Cheers

  2. #2
    Join Date
    Oct 2013
    Posts
    1,617

    Default

    Quick clarification on terminology - a "residential property" is a property that is intended for use as a residence; which includes your investment property outside of Auckland. You may want to use terms like 'private residence', 'primary residence', 'home', or 'PPOR' to refer to where you're living.


    Technically yes your property is under the 40% deposit, but I've not heard of any situation where the banks require you to 'make it right' - pretty sure the LVR restrictions on the bank apply at the time of purchase only.

    Most people wouldn't let the bank know about the change, out of either fear of repercussions, or of laziness. Very common not to let the bank know what's happening. However, you'll probably find that it's in breach of your loan terms. The actual consequence is probably nothing at all, but could go as far as them calling in your loan.

    If you bought a home, you will be able to borrow 80% to buy this. But probably not through ANZ. Any other bank will probably allow it, and if they don't it's an internal bank decision, separate entirely from the LVR restrictions imposed by the reserve bank.

    To break a cross-collateralisation, refinance one of the properties to a new bank.
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  3. #3
    Join Date
    Oct 2013
    Posts
    1,617

    Default

    However - worth considering whether the existing property will actually be a good rental or not. You may be better off selling it and buying elsewhere (in Auckland, or externally). Keeping in mind though, that any new investment purchases will likely be at 60% LVR.
    AAT Accounting Services - Property Specialist Accounting - AATAccounting.co.nz
    Lower fees for investors, traders & real estate agents!
    [email protected] for more information.

  4. #4

    Default

    Thanks Anthony.

    But will it make sense if going to buy a new PPOR (outside Auckland) with 20% deposit whilst the other two existing properties (AKL property - current PPOR and non-AKL property-IP) are currently with ANZ? I think what I'm trying to ask is if current 2 properties at current LVRs stay the same and I can still purchase a new PPOR on a 20% deposit?

    Thanks again.

  5. #5
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,594

    Default

    Hi ak22,

    I would start with talking to mortgage broker. They can help you workout what you can and can't borrow. They can also help you seperate to different banks, so that you aren't tied to just one.

    Ross
    More Profit from Property? TEACH ME MORE
    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.

  6. #6
    Join Date
    Oct 2013
    Posts
    1,617

    Default

    Quote Originally Posted by ak22 View Post
    I think what I'm trying to ask is if current 2 properties at current LVRs stay the same and I can still purchase a new PPOR on a 20% deposit?
    Your question was clear. Sorry if my answer wasn't, the below part applies to this:

    If you bought a home, you will be able to borrow 80% to buy this. But probably not through ANZ. Any other bank will probably allow it, and if they don't it's an internal bank decision, separate entirely from the LVR restrictions imposed by the reserve bank.

    As Ross has said, speak to a broker, they'll find a way to help you.
    AAT Accounting Services - Property Specialist Accounting - AATAccounting.co.nz
    Lower fees for investors, traders & real estate agents!
    [email protected] for more information.

  7. #7
    Join Date
    Mar 2007
    Location
    Auckland
    Posts
    3,019

    Default

    And, of course, you'll need to amend your insurance policy on the property from 'owner occupied' to 'residential rental'.


 

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