How to work with LVR restrictions in New Zealand
Last month new loan to value ratios limits became official as a part of the Reserve Bank’s move to control property prices. Reserve Bank Governor Graeme Wheeler explained in comment to the New Zealand Herald that the new law would minimise the risks of lending to such buyers:
“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.”
Banks are now permitted to make no more than 5 per cent of their total lending to investors with an LVR of less than 60 per cent. It’s clear that this will affect residential investors adversely, making investment more challenging – but there’s ways to work around these changes.
They don’t necessarily make investing harder, they just necessitate a more creative approach. Let’s have a look at a few possible options.
Buy out of the ordinary
As you would have heard from the media outcry recently – QV puts Auckland’s median property value at over $1million. If you’re investing in Auckland you could have to come up with a $400,000 deposit, a figure that may prove too lofty for even seasoned investors.
Buy outside of Auckland and your deposit could halve instantly. In Whangarei for example, the median price is just over $440,000. A 40 per cent deposit at that price is $176,000.
Plus the area actually saw median value gains of almost 7 per cent more than Auckland did for the year ending 2016, so property in Whangarei can certainly be just as lucrative.
Consider locations you may not have before based purely on their affordability and potential to turn a profit.
Go with a new build
In a bid to help fund and incentivise development, the Reserve Bank has decreed that new builds are exempt under the new LVR speed limits. This applies to homes that purchased directly from the developer at most six months after construction. Under these exemptions, you may be able to borrow and buy an investment property with an LVR of 80 per cent.
This will bring the deposit on a home at Auckland’s median value down to roughly $200,000. Still a large sum, but far less imposing.
Statistics NZ shows that there has been almost 10,000 homes built in Auckland so far this year, so you’ll have plenty to choose from. If you’re looking to buy elsewhere you may be in luck. There has been over 1,000 homes built in Whangarei this year, 3,449 in the Waikato and 2,358 in the Bay of Plenty. Interestingly there was almost 1500 homes built in Otago, suggesting you may be able to find a new build in the up and coming investor hot spot of Queenstown.
Each lender is different
As an investor it’s not necessary to resign yourself to the impossibility of finding a loan for more than 60 per cent of a properties value. That’s because the Reserve Bank’s laws state that no more than 5 per cent of a banks loans should go to high LVR residential investors. While it may seem unlikely it’s possible to get in that lucky 5 per cent.
If one bank or lender says no to you it doesn’t mean that another will. By dealing with a mortgage broker, you’ll have more insight into which banks have reached their 5 per cent threshold and which haven’t.
It’s certainly more difficult for investors after the passing of these new laws, however, with an inventive approach it’s possible to see the same positive results from your investment.