How have the changes to the LVR (loan to value ratio) introduced by the Reserve Bank towards the end of last year affected New Zealand's property investment market? We explore some of the still frequently asked questions.
Do different rules apply to Auckland vs. the rest of New Zealand?
Previous LVR changes in 2015 were only applicable to the Auckland housing market, however the 2016 announcement has seen these investor-lending rules rolled out nationwide - standardising requirements throughout all regions.
What is the new deposit requirement?
When it comes to purchasing a residential property investment, banks are enforcing a 40 percent deposit for 95 percent of mortgage loans for investors. This has gone up from 30 percent. It is worth noting that the deposit can be cash, equity, or a mix of both.
Where do non-bank lenders fit in?
The LVR rules do not apply to non-bank lenders, which has provided a way around the restrictions for property investors. However interest rates are often higher through these companies, and as there are less of them on the ground compared to banks, there will certainly be limitations on how many investment-based loans they can approve.
What has stayed the same?
For both investors and owner-occupiers, only a 10 percent deposit is required for new builds for off-the-plan purchases (however be aware some banks may still ask for 20 percent).
Is there any lending exempt from these changes?
Yes, there are a few exemptions. As previously mentioned - new builds, including houses built within the previous six months and purchased direct from the developer - as well as bridging finance, re-financing existing high LVR loans, funding for non-routine extensive repairs due to natural disaster or weather tightness issues, and for remediation work (for example meeting the new requirements for insulation in rental properties).
Also, borrowers with owner occupied and investor collateral can use the combined collateral exemption* to obtain finance up to 60 percent of the value of the investment properties and 80 percent on their owner occupied property.
What lending solutions are on offer?
As noted above - there is the new build exemption for investors, as well as using a non-bank lender for a loan (but be aware you may have to get an adviser to assist with this process, as many non-bank lenders have this as a requirement). Then there are other options such as investing in commercial property (however this is likely only viable for experienced property investors) or joint investment, where a group of people make a purchase together.
How have LVRs affected the property market?
As with any change there was certainly a flurry of activity (or lack-of due to tighter restrictions) but it certainly hasn’t crashed the property market, with the median national house price setting a new record in November.
However Scoop did report that the investor’s share of new lending in November was 27 percent, its lowest level since the data series began in August 2014 and down from a high of 38 percent a few months prior. But perhaps that was just due to investors getting their heads around the new legislation, and seeing how the market would respond - only time will tell the true impact of the LVR changes.
*As a side note to this rule, there has been some confusion arising out of banks requiring customers to reduce the LVR below 60 percent on a portfolio of properties, if they sell one of their rentals, before taking any proceeds of the sale in cash.
The Reserve Bank has said that repaying part of a mortgage (selling one of a pool of securities) does not need to constitute a new commitment and need not be in scope for the LVRs.
However, it added that, more generally, how the proceeds are split between borrower and bank when a property is sold will depend on the mortgage contract and the policies of the bank.
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