Investors told: Be careful

Friday 21 June 2013

Interest rates will eventually have to rise a lot more than people are thinking because loan-to-value restrictions will not have the expected consequences, BNZ chief economist Tony Alexander says.

By The Landlord

He said the rules had a focus on bank stability, not housing affordability. “People will find ways around their rules and the RB will eventually be forced to raise interest rates potentially a lot more than people are currently thinking.”

He recommended borrowers think about fixing half their debt for three years or more.

Alexander said property investors should have their eyes wide open – especially if they were being sold investments via seminars.

“Remember to allow for interest rates rising from current levels which only exist because the world economy is still struggling to recover from the biggest financial downturn since the 1930s.”

People should be wary of rent guarantees and realistically budget for maintenance, he said, and remember they were buying an accommodation business, not a corporate bond.

“Watch for some projects in which you buy off the plan perhaps never getting off the ground, and for goodness sakes check out whether the land is leasehold and subject to a review which could see costs skyrocket as happened at a few sites in Auckland.”

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