- ANZ is offering a 10-year interest-only term for investment property loans, doubling the previous maximum.
- Experts are divided, with some seeing it as a confidence boost and others as a marketing tactic.
- The move is expected to attract investors seeking extended cashflow and reduced administrative hassle.
The country’s biggest bank is offering a 10-year interest-only mortgage for investors.
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The new offer from ANZ trumps the previous maximum interest-only term of five years. Experts said the move suggested the bank was trying to grab a bigger share of the investor market.
An ANZ spokesman said the policy was a response to customer demand, citing feedback from residential property investors who wanted longer interest-only mortgage terms.
“This change simplifies that process for customers and means they can now choose a period of time that best suits their needs at the start of the interest-only period.”
Reaction to the offer from mortgage advisers and economists was mixed. Some told OneRoof it would give investors a bit more confidence, while others dismissed it as a marketing tactic.
Opes Partners resident economist Ed McKnight says applicants will still need to repay the principal. Photo / Fiona Goodall
Opes Partners resident economist Ed McKnight said about 40% of investment mortgages were interest-only when they were taken out, so the latest term would likely attract borrowers.
He expected many Opes investors would take up the offer because it would free up more cash and provide more security. But they would still need to pay off the principal. The biggest downside was that applicants would need to prove they could repay their mortgage over 20 years rather than the typical 30-year term.
“It probably won’t change investors’ behaviour, but it will make them feel a lot more secure,” he said.
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NZ Property Investor’s spokesperson Matt Ball said the new offer would benefit both ANZ and investors. Paying interest only was a common strategy for investors and helped them grow their portfolio faster.
“ANZ’s move will be attractive to many investors, and the timing is spot on. They’re offering it at a time when many mortgage holders are coming off high fixed rates and are looking to refinance,” he told OneRoof.
Tella chief executive Andrew Chambers said not all investors would be eligible for the 10-year interest-only term because some would not have the level of equity needed.
“Generally, if they are on interest-only, they’ve got a good level of equity. Otherwise, the banks would say we need to see you put some principal in it,” he said.
The new loan is likely to give investors more confidence and certainty, experts say. Photo / Fiona Goodall
“But once they get down to a certain level, they are quite comfortable doing interest-only because usually with an investor in residential property it’s a long-term play around capital gains, so the bank is banking on it going up in value as well.”
However, Chambers said in the current market, where values weren’t rising quickly, the banks may want to hold on to loans that generated income for them.
Float Mortgages financial adviser Geoff Christopher said the main banks were already relaxing their investor policies, and this was just another way for ANZ to increase its market share.
Previously, investors would sign up to a five-year interest-only loan and then reapply for a further five-year interest-only loan, often with a different bank. This was the first time one of the four big banks had stepped up and offered a 10-year interest-only term, he said.
Cotality chief property economist Kelvin Davidson said the 10-year interest-only loan “might just be endorsing what already happens”.
He said it could be seen as a marketing tactic because the only advantage of having a 10-year interest-only loan instead of investors applying for two five-year interest-only loans was that it reduced the administration side of things.
“We are seeing in the market that banks are starting to make a comeback, so if we are thinking about sort of where the next growth is going to come from – any mortgage product that helps investors is where they might be headed.”
Davidson said it was common practice for investors to take out interest-only loans as it freed up cashflow and allowed them to add to the rental pool when they may not have.
“It would be better if people were paying principal and interest, but there’s nothing new there. Investors have been on interest-only forever – it’s always been pretty common to go interest only.”
GV Financial Services director and financial adviser Gareth Veal shared Davidson’s view that it was ANZ’s way of beating the competition. He expected others to copy.
“In my mind, the cash incentives and the ease of interest only being applied to new lending is a solution looking for a problem that doesn’t actually exist. Only for people whose circumstances may not allow them to be in a position to refinance to another bank.
“It’s a safety for people who are older and might lose their incomes. They can hold on to the house at an interest-only period for longer because the ANZ has approved them for 10 years. It just gives them certainty.”
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