Reserve Bank announces new nationwide Property Investor Restrictions

July 20, 2016 MTI admin No comments exist

You may have seen that the Reserve Bank announced pending changes to loan-to-value restrictions (LVRs) to further mitigate risks to financial stability arising from the current boom in house prices.
All Property Investors will now need a 40% deposit for an Investment Property Loan from a Bank, and Banks will have to further ration their Owner Occupied High LVR Loans (over 80%).
“The banking system is heavily exposed to the property market with residential mortgages making up 55% of banking system assets. Investor lending has been increasing rapidly and is a significant contributing factor to the current market strength. The proposed restrictions recognise the higher risks associated with such lending” Governor Graeme Wheeler said.
Details under the new restrictions:
• No more than 5% of bank lending to residential property investors across New Zealand would be permitted with an LVR of greater than 60 percent (i.e. a deposit of less than 40 percent). What this means to you is that, if you wanted to purchase an investment property or wanted to release some equity from an investment property, then in most instances your loan will be limited to a maximum of 60%.
• No more than 10% of lending to owner-occupiers across New Zealand would be permitted with an LVR of greater than 80 percent (i.e. a deposit of less than 20 percent). In Auckland, this is no different to current restrictions. However, this brings the rest of New Zealand in line.
• Loans that are exempt from the existing LVR restrictions, including loans to construct new dwellings, would continue to be exempt. The intent is to slow down the property price increases, and building new properties helps increase “stock” or the amount of residential homes.
The Reserve Bank has also stated that they have made some progress in limiting borrowing through a loan-to-income restriction, but apart from speculation, no other news about that as yet.
These changes are to come into effect 1 September 2016, but it is expected that banks will observe the spirit of the new restrictions in the lead-up to the new policy taking effect. In speaking with one lender yesterday, a senior representative suggested that his company would apply the restriction with immediate effect for new applications.
Please note, however, that Masters Home Loans has a relationship with over 20 lenders, many of whom are non-banks. The restrictions do not apply to non-banks. We are still able to negotiate and work around the banks regulations so if you think you may be impacted by these changes, please feel free to contact Sasha at sasha@mastershomeloans.co.nz or 021 890 850.

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