New property exempt from RBNZ LVR rules

The Reserve Bank announced today that new builds will be exempt from the recent LVR restrictions. It's a shame that they've done it so soon after putting the rules in place, as it looks like a backdown on the broader changes, but I think it is the right decision.

As a Broker and a Developer, the biggest issue I've seen is that the LVR rules were only ever expected to be a speed limit. However, they ended up creating ambiguity for homebuyers buying off-plan. Bank preapprovals only last 6 months. Buyers cannot get finance confirmed until a property is developed, so there has been no certainty for buyers whether a bank could lend to them on completion. In effect, the LVR rules were killing the ability for First Home Buyers (or anyone with less than 20% deposit) to buy into new developments.

Ironically, the solution to Auckland's housing issues is more medium and high density development, yet the LVR rules were killing approvals for such developments. From a development funding perspective, banks were also starting to focus on the number of sales to low deposit buyers as a key risk, so the rules were starting to make it harder to get development funding and get projects off the ground. In reality the LVR change for new builds is a small change, but one that better aligns the need for new building activity with the Reserve Bank's desire to keep prices in check.

As far as my development is concerned (www.powellstreet.co.nz), we've started clearing the site today and construction will start late January. There are about 6 units still to sell, so check them out and contact Charter Real Estate if you are interested. They're $585,000 each and you can buy with a 10% deposit. I think this tweak to the policy means that the 10% limit will stay in place longer. Along with Welcome Home Loans, it creates enough space for First Home Buyers to keep the politicians happy next year.

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