1. Home
  2.  / Servicing Equity

Servicing Equity

Ask An Expert

By: Property Investor Team

1 June 2016


What is the best way to service equity in order to move on to another deal?


This is quite a complex issue. There is the actual "servicing” of the loan, which is where you need to do your own budgeting to make sure you can afford any obligations you take on. Then there is the way the banks look at the situation.

Firstly, in most cases, lenders are only taking 75% of the rent into consideration for servicing purposes. Then, in most cases, lenders assess the debt you have and the debt you may be looking to get on higher “qualifying” interest rates. Also, this debt will often be assessed on a principal and interest basis even if you are looking to structure your loans on an interest-only basis.

There are exceptions to the above which isbwhy it can be important to approach lenders in a particular order if servicing is likely to prove a hurdle. However, also note that these calculators are always changing so what may work today may not work in a year’s time. - Kris Pedersen


Chasing up rent. I have some tenants who are once again falling behind with their rent. Currently, they are three weeks’ behind. This is not the first time this has happened. While we really like the tenants, we just want to know what our options are to get the tenants to pay the rent up to date, and what we can do to ensure this doesn’t happen again.


Under the Residential Tenancies Act, tenants are required by law to pay the agreed amount of rent to a landlord when it is due. This should be stated in your tenancy agreement. Failing to do so is a breach of the Act and the tenancy agreement, and a landlord has the right to take steps to remedy any rent arrears.

Landlords and tenants have a number of options available to resolve tenancy problems. The first option is to try to selfresolve by talking with the other person.

If the tenant is having difficulty, you could consider a repayment plan (for example, allowing them to add an amount to their regular rent until the debt is paid). Record any agreement you make together in writing. If a workable agreement is reached between you and your tenant, then you could consider using the

FastTrack Resolution service to formalise the agreement. (More information about FastTrack is available on our website). For overdue rent at least 21 days in arrears, landlords may apply directly to the Tenancy Tribunal to seek an order to recover the amount owed, and depending on the outcome sought, may also seek an order to formally end the tenancy.

If the rent is less than 21 days’ behind in rent, a 14 day written notice to remedy the breach can be issued asking the tenants to bring the rent up to date within 14 days. If the notice is not complied with, then the landlord could file a Tenancy Tribunal application for scheduled mediation to try and resolve the problem with the help of a mediator (any agreement could include consequential clauses), or a Tenancy Tribunal Hearing. The easiest and fastest way to access our dispute resolution services is to apply online at https://tenancy.govt.nz/disput... making-an-application/ using the online Tenancy Tribunal application tool. - Allan Galloway


Transitional tax residents I migrated from the UK last year and became a New Zealand tax resident. I have a rental property in the UK. The UK rental property makes a loss (of around $NZ4,000). I have heard that new migrants have four years' exemption for their overseas income. My question is that my overseas rental property is making a loss, if I don't apply this four years' exemption, can I claim the UK rental loss to offset my New Zealand income to reduce income tax liability here?


It is optional to apply the four year transitional resident’s exemption. However, before opting to include the UK rental income you need to consider some wider issues. New Zealand has a non-resident withholding tax (NRWT) regime which requires you to withhold a 10% withholding tax on interest paid to a foreign lender.

This is because New Zealand gives you a deduction for the foreign interest expense that will reduce your tax here, but does not get to tax the profit the UK lender makes from your loan. If you choose to declare the foreign income from the point where you became a New Zealand tax resident you must also comply with the NRWT regime.

This would be likely to mean you now have arrears of NRWT. An alternative to the NRWT regime exists through the approved issuer levy (AIL) regime. This is a full and final tax of 2% on the NZ dollar equivalent of the interest paid to the UK lender. It is generally cheaper to pay the AIL than it is to comply with the NRWT regime but the regime is concessionary. This means that you must clear any arrears of NRWT before IRD will grant you approved issuer levy status for the foreign loan.

You should also consider the impact that foreign exchange variations may have on your loss position. The foreign debt instrument when expressed in NZ dollars can derive a profit if, for example, the kiwi dollar strengthens or the pound weakens resulting in a decrease in the UK debt when expressed in kiwi dollars. Specific rules govern whether this forex variation must be returned annually or, alternatively, when the foreign debt is repaid or refinanced.

Suffice to say, it can introduce a wild card into your New Zealand tax affairs that could undermine your assumption that you are deriving a loss. The point of the transitional resident’s exemption is to give you four years to consider how you wish to arrange your affairs before having to expose your worldwide income earning assets to our tax regime. I'd recommend you seek advice on all the potential impacts of retaining the property before you make any decisions. - Mark Withers


Property management 101. We are Auckland based and have an offer in on our first investment property on the Kapiti coast. What good advice can you give us in terms of our preparing for our first rental property – eg: legal stuff, finding tenants ASAP after nsettlement, property management? Also, I believe water rates are included in owners rates rather than billed to tenant – should we allow in rent? What about excessive water usage? Property manager/self management pros/cons?


The first point I pick up from your question is that you are based in Auckland. For that reason you are not in a position to oversee your new investment in Kapiti. You would do very well to align yourself with a local property manager. Once the tenancy starts, ongoing monitoring through regular inspections and, informally, while driving past your property, all adds to the security that you will be looking for. When you do your pre-purchase inspection (or have your property manager do it for you) make sure that the power outlets are all working and that the alarm system (if any) is in working order.

Also, make sure that you receive all the keys upon settlement. It is amazing how many houses change hands, with only one copy of the front and back door keys handed over! Some vendors are happy to give a property manager a couple of viewing appointments before settlement, but it depends on the circumstances. In any case, advertising for a tenant should start immediately upon settlement (or earlier if possible).

Water charges are operative in the Kapiti Coast. The property owner is liable for paying all water charges to the local authority. Then, under the Residential Tenancies Act, the tenant is liable for the volumetric (metered) charges for the water they consume. That means that water meter readings should be taken at the start and end of tenancy and matched against the invoiced meter readings to get actual usage. The tenant is then invoiced by the property manager for their actual consumption, at the designated rate charged by the Kapiti Coast District Council.

This “user pays” mechanism encourages tenants and owner-occupiers alike to be economic with their water usage, and to report leaks where they see their metered usage is higher than expected. It’s a system that has been running for two years, and so far it has been a success. - Bernard Parker


Related Articles