If you are living in NZ right now, you are very likely to be aware of what is happening in the property market, with auction clearance rates up, and property prices rising at rapid rates.
A recent article (see here) from Tony Alexander has suggested that the LVR restrictions are likely to return next year due to the strength of the residential property market.
At the end of April, the RBNZ scrapped the LVR restrictions which were in place. These effectively limited the amount of high LVR lending the banks were able to offer. For investors this was a 30% deposit on investment property, and for first home buyers, only 1 in 5 loans through banks could be at above 80%. By having these restrictions removed the banks effectively were able to lend more – and due to their strong financial positions and the availability of credit at the time, they have been doing just that. Note – not every bank is doing 80% lending on investment properties.
Something else to be aware of however – the elephant in the room – has been COVID-19, which of course has made lending criteria tighter in many areas and has affected the lives of many New Zealanders. While banks are allowed to lend more in certain spaces due to the LVR changes, it doesn’t mean they have been so relaxed that they have been lending without caution – from what we’ve seen as advisers, this certainly isn’t the case and if anything it has been the opposite.
Don’t get me wrong, banks are wanting to lend, it just means that if you are a borrower at the moment you are in a position where there are more hoops to jump through and approvals are taking significantly longer.
If you are in a position where you are looking at purchasing property, or even may consider it to be something you’re looking at in the not too distant future, we would strongly recommend you take advantage of the lending environment with the fact the LVR restrictions are gone for the meanwhile.
If you’re an investor, what does this mean?
If you are buying or wanting to buy now, then you’re in a position to purchase properties with a 20% deposit, which means your deposit stretches further. If you had a $150k deposit previously, that would have meant you could buy $500k of property (30% deposit requirement) but now you could buy for up to $750k. That is 50% more purchasing power.
If you are not buying at the moment but might be next year or the year after, then we would recommend increasing all of the lending on your investment properties up to 80% LVR, and using the increase/proceeds to reduce debt on your owner occupied home. This is invaluable advice, because when the LVR restrictions come back in (which looks likely) they will not affect your owner-occupied property, and you’ll have the equity to continue to invest.
The extremely low interest rate market right now too might mean you actually end up better off in regards to cashflows, while also being set-up more appropriately.
If you’d like us to take a more specific look at this for you in regard to your own position, please feel free to get in touch at firstname.lastname@example.org