It’s not the relaxing to 70% that some investors had been expecting however the increase from 60% to a 65% threshold will in some cases be the difference in getting another property transaction across the line. That is the big news for investors in the Financial Stability Report which was released earlier this morning.
There is also a relaxation from the 10% that banks were allowed to fund to owner occupier properties above the 80% LVR threshold to 15%. I expect that this won’t cause too much of a change as the banks have proven to be difficult in issuing preapprovals in this space anyway and are likely to be cautious with higher LVR because of where we are in the property cycle. We saw them voluntarily back away from this part of the market last cycle so I can’t see much freeing up because of this change.
So from 1 January 2018, the LVR restrictions will require that:
• No more than 15 percent (currently 10 percent) of each bank’s new mortgage lending to owner occupiers can be at LVRs of more than 80 percent.
• No more than 5 percent of each bank’s new mortgage lending to residential property investors can be at LVRs of more than 65 percent (currently 60 percent).
The LVR rules have definitely improved the resilience of the banking system as it has changed over 20% of mortgages being written having LVR’s above 80% to the current situation where under 8% of outstanding mortgages are above that threshold.
The Reserve Bank has again recently pushed its interest in having a debt – to income tool in its toolkit which so far politicians and bankers alike have shown no interest whatsoever in as can be seen by the bank submissions entered in reply to the consultation paper that was released. With the RBNZ needing sign off from Treasury and the Minister of Finance at this stage I can’t see this getting approved especially as across the banking spectrum we have seen more prudency being implemented in regards to how servicing is being assessed.
Whilst the above LVR changes may not change things much for some it provides a good opportunity in 2018 for investors to review and restructure their portfolio. With the recent release also of Council Valuations (which may get around the need in some cases to pay for registered valuations) we would recommend clients who still carry debt on their personal residences use this chance to load more debt onto the investment properties and pay down debt on their own homes.
We’ll be in touch in the New Year for anyone who wants assistance in this review process
I am also sitting down tomorrow as one of the few initial brokers to get accreditation for a new non-bank product. I don’t have much detail yet but the hope is this will also provide us with another higher LVR investor option.