Last week the Reserve Bank announced changes to the loan to value ratio restrictions implemented in recent years to address the rapidly rising house prices in the Auckland market.

At present Lenders are restricted to only being able to advance 10% of their lending book for above 80% lending (ie when someone has less than a 20% deposit) no matter what location.  However The Reserve Bank have acknowledged that while Auckland’s median house price is 60 percent above it’s 2008 level and house prices in Auckland have been rising rapidly since late last year, the rest of the country is not experiencing such aggressive market conditions.  They further acknowledged that blanket restrictions on Loan to Value ratios is not going to control the rising house prices where it needs to and will adversely affect other areas of the country.

The Reserve bank have amended these restrictions  which  will come in to  effect on 1 October 2015.

They will retain the existing 10% speed limit for loans to owner-occupiers in Auckland at loan to value ratios of greater than 80% but they will  they will increase the existing speed limit for high LVR borrowings outside of Auckland from 10 to 15 percent to reflect the more subdued housing market conditions outside of Auckland.  

Property investors purchasing in Auckland will require a deposit of at least 30 percent.

So what does this mean in plain English?

If you are a potential home owner wanting to purchase an owner occupied home in Auckland nothing has changed.  

However if you are looking to purchase an investment/rental property in Auckland it will be more difficult as you would be required to come up with  more deposit.  Furthermore investing in Auckland may mean that it could impact on the growth of your investment property portfolio as you wouldn’t be able to borrow more than 70% of the value on an Auckland property meaning you can’t tap in to the equity of that property to the same extent as you could in a rental property outside of Auckland.

There will be more funds available from lenders to advance on purchasers outside of Auckland with high loan to value ratios do if you are someone looking to purchase a property outside of Auckland using less than a 20% deposit it will be easier to get a loan as there are more funds available from lenders to advance.  

The end result of these changes is hoped to be:

1. Slowing down of house prices in Auckland
2. More lending to potential home owners outside of Auckland where they have less than a 20% deposit meaning the housing market may well be able to pick up in these areas.

While this remains to be seen it does seem to acknowledge that blanket restrictions were never going to work to control one area of the market but this definitely seems to be a step in the right direction.

This post was written by

Trish Marsden - who has written 5 posts