The new loan-to-value (LVR) ratio restrictions have officially come into effect as of 1 September, but it appears that the rules are not quite set in stone yet. The Reserve Bank of New Zealand (RBNZ) has announced an adjustment to the planned changes, allowing buyers of newly-built homes half a year to get their finances in order before having to commit to a buy. With there already being an increase in building activity recently, this could push the heights of Auckland construction even higher.
This will come into effect on 1 October. What do you need to know before then?
The first round of LVR restrictions were announced in 2013, with the intent to curb the amount of investor lending and, subsequently, help cool down the burgeoning property market in Auckland. While there were a few drops in value over one or two months, the Auckland market has generally continued to grow in value, prompting further action from the RBNZ.
Three years later, and we are now on the third round of these adjustments, and the restrictions have stretched both in intensity and in geography. Rather than only restricting Aucklanders, the new rules apply to the whole of New Zealand. Meanwhile, the LVR restriction of no more than 70 per cent property value loans for investors has adjusted to no more than 60 per cent.
In other words, an investor interested in buying a home valued at $500,000 is now required to provide a $200,000 deposit, rather than a $150,000 deposit.
One of the main reasons for these LVR limits given by the RBNZ is to help reduce the demand for the dwindling number of New Zealand homes, particularly in Auckland. Many investors and home buyers choose to take on high LVR loans in order to construct houses. As such, blanket restrictions might do more harm than good.
As a result, these LVR restrictions do not apply to new or to-be-built homes. However, the issue under the old restrictions was that exemptions could only be attained if the buyers were pre-committed or got on board early on in the construction.
Under the new restrictions, buyers and builders of new homes have six months to buy the property from a developer, giving them the chance to get their finances together and still receive the exemption without a great deal of forward-planning. That's something that is a benefit to everyone from first home buyers to property investors.
For more information on the new LVR rules and how it affects your lending options, make sure you get in touch with the mortgage advice experts here at Squirrel.