21 July 2016
The Reserve Bank of New Zealand (RBNZ) is tightening the rules for property investors, with a requirement to have a maximum LVR* of 60% nationwide.
The RBNZ has kept the LVR threshold for owner-occupied the same at >80% LVR, but has replaced current regional volume limits (10% Auckland, 15% rest of NZ) with a nationwide limit of 10%.
*LVR is Loan to Value Ratio – it refers to the amount borrowed versus the value of the property.
What is changing and when?
These changes are effective 1 September, but the banks are starting to adopt them now.
- All property investor applications will be at a maximum 60% LVR or higher if the combined security position includes an owner-occupied property.
- A customer is considered a property investor if their security includes an investment property.
- Owner-occupied policies will remain the same, but a 10% nationwide volume limit will apply, rather than just 10% for Auckland and 15% elsewhere.
- There are no longer any regional distinctions between Auckland and the rest of New Zealand.
Why has the Reserve Bank announced this change?
The RBNZ has indicated concern around the growth of property investment lending. To ensure financial stability in the event of an unexpected downturn, it has identified property investors as being a higher risk than owner-occupied lending. This distinction comes from overseas experiences during downturns. As such, RBNZ is looking to mitigate any potential risk to New Zealand by requiring larger deposits, thus improving serviceability.
It has taken the same approach with the changes to the volume limit for >80% LVR for owner-occupied lending. Although this is not perceived as a large risk compared to property investors and as such the volume limit has not been amended as drastically as the changes to property investor LVRs.
RBNZ has also indicated that it will look at further tools, such as higher capital ratios, and the potential introduction of Loan to Income limits.
For more information, please refer to RBNZ’s Consultation Paper, available at reserve-bank-new-nationwide-investor-lvr-restrictions.
Alternative Funders to the main banks
Despite these restrictions coming in from the RBNZ and the banks we are still in a position to help clients who may not meet these benchmarks.
There are a number of funders who are quite happy to lend up to 90% for owner-occupied properties, with the normal debt servicing requirements.
These funders will also look at 80% funding of investment properties or a mix of both.
As normal, a lot depends on the strengths of each deal.
Pricing, in most cases, is not that much more than what the main banks have been offering to date for deals in excess of 80%.
So, if you are looking at purchasing either your own home or an investment property but feel they are now out of your reach give us a call and we can meet with you to discuss your options—of which we have plenty.
Call Pete on +64 27 249 6764
Call Vickie 0n +64 27 230 6091