The New Lending Rules:
As of 1st September the Reserve bank has put in place new LVR (loan to value ratios) requirements for lending to both investors and homeowners. The changes are nationwide and are aimed at minimising the financial stability risks to our economy arising from the growing pressure in the housing market. The Reserve Bank launched proposals which mean that only 5 per cent of lending to residential property investors could be to borrowers with less than a 40 per cent deposit.
Currently investors in Auckland require a 30 per cent deposit, with no specific lending restrictions elsewhere in New Zealand. To slow the housing market, the Reserve Bank is going to put limits on how much investors can borrow and has also re-tightened limits on how much banks can lend to people with house deposits under 20 per cent.
The banking system is heavily exposed to the property market with residential mortgages making up 55 percent of banking system assets. Investor lending has been increasing rapidly and is a significant contributing factor to the housing market prices increasing. The proposed restrictions recognise the higher risks associated with such lending. The change effectively tightens lending for all investors beyond Auckland and lowers the LVR limit for all investors.
What does this mean?
It’s aimed firmly at property investors, to stop people from buying multiple properties for short term profit. It a known fact that there aren’t enough houses available (that’s why prices are so high) so having investors snap them all up doesn’t help fix the problem. Some of the changes will hit first home buyers as the Reserve Bank has cut back to 10 per cent of bank lending, and applies to borrowers across New Zealand with a deposit under 20 per cent.
The good news for first time home buyers is that the bank’s can still approve loans up to 90% LVR (with 10% deposit) however the banks are limited in how many loans they can approve over 80% LVR.
If you are looking for advice about home ownership or investment property contact our mortgage team – we would love to help out!
0800 700 699
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