Over the last six weeks there has been some significant changes that will affect both first home buyers and investors. The first one is LVR restrictions. Now many might say “what is LVR?”. To keep this simple – LVR is simply loan to value ratio. This means the amount of lending (mortgage) you have versus the current market value of your house and is expressed as a percentage. This means you “own” a percentage of the property and the bank “owns” the rest!
The role of the Reserve Bank is to govern the trading banks. What this means is that the trading banks have to comply with the rules set down to them.
As of 1 October the Reserve Bank has announced that trading banks have to lower the amount of lending they do above a certain percentage.
What this means is different for each individuals circumstances.
For owner occupied properties the banks are now only allowed to lend over 80% to 10% of their total lending. This is now across the whole of New Zealand as previously outside of Auckland this cap was at 15%.
This means that more people will need 20% deposit than previously as the banks will have less to lend out at this level.
Purchasing investment properties has changed also. Banks are now only allowed to lend over 60% of a property’s value to 5% of their total lending.
As a result of this most people will need 40% deposit to purchase a rental property.
We all want to know “what does this mean for me?”.
If you are a first home buyer it means you may need to shop around a few different banks to see who will lend over 80% if you have less than a 20% deposit. This may have a lot to do with how much that particular bank has lent out at the time.
There are other options like taking a guarantee from your parent’s property to make up the shortfall so you then have 20% deposit.
There is also the option to build a home. New homes being constructed are exempt from the LVR restrictions and therefore most banks credit policies will allow more loans over 80% for this purpose.
If you are an investor you will likely need 40% deposit.
This however does not have to be “cash” and can in fact be the equity that you already have in your existing owner occupied property or other investment properties.
The same thing applies if you wish to construct properties for rental investment – this is exempt of the new rules.
As with everything knowledge is power. Every client has different circumstances so it is always best to sit down with one of the team and go over the best option for you. We will work through to find a solution of how to get you into your first home or on to the property investment ladder. We have a wide range of bank options and non -bank providers and our service is at no cost to you.
Our next blog will be about the changes to Kiwisaver and how this can help you get in to a first home sooner.
This information is general information only and must not be relied upon as legal advice. A disclosure statement is available here.
