New LVR Restrictions

27 July 2016
In an effort to reign in house price inflation the Reserve Bank issued mandates to banks which are as follows
1) For owner occupied homes banks can have no more than 10% of their loan portfolio securing loans above 80% Loan to Value Ratios (LVRs).  Previously this was 15% so this means less funds (loans) available for high LVR loans meaning it will be harder to get a loan at this level.  
2) For rental properties lenders cannot advance any more than 60% of the value of the property.    Property investors will have to have a bigger deposit or access more equity in other property/ies they own to purchase a rental property. Previously this pertained only to Auckland properties but now the rule is nationwide. 
While the new rules do not come in to play until 1 September 2016 banks have already changed policies to align with these new regulations so it’s important to know what this will mean for borrowers.
If a client has a pre-approved loan that is above these LVRs  and settles before the expiry of the loan approval (most loan approvals are valid for 60 – 180 days depending on the lender) then the bank will honour the approval. However if the settlement of the loan goes outside the timeframe then the bank will almost certainly not roll over the loan approval.  If in doubt clients should contact their mortgage advisor or their lender to ensure their approval is valid.
If property investors are wanting to purchase property they will either have to have a 40% deposit or use equity in their existing property/ies.  The good news though is that with the rising market their existing properties should have increased in value meaning they have more equity in those properties meaning that they may not need to raise the full 40% in cash.  It is vital that property investors are aware of the values of their properties to establish what their options are.  
Lending above 80% for an owner occupied home will still be possible but there are a few differences:
1) There will be less opportunity for clients to purchase with a smaller deposit
2) There may be more reliance on third parties such as guarantors
3) There may be more reliance on the Welcome Home loans which has a property cap of $350,000.  
4) In all likelihood pre-approvals for any loan above 80% of the value of the property will not be offered until there is a signed sale & purchase agreement in place.  
The new rules shouldn’t not stop clients doing what they want but it may well mean the way they do things will have to change.  It is now more vital than ever that clients consult with a mortgage advisor to establish how the new rules will affect them and how they can work within the new framework to achieve their financial goals in purchasing property.   

Published In The Whakatane Beacon

This post was written by

Trish Marsden - who has written 96 posts

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