40% Deposit Restrictions for Investors Introduced by RBNZ

After both the RBNZ and the Government not implementing any significant property related changes in May in regards to the RBNZ’s Financial Stability Report and the Budget, respectively the RBNZ has this morning put a 40% restriction on the banks in regards to investment lending.
 
Note that while this effectively is not in play until September this year, they are expecting the banks to action it immediately in most cases, which basically means that if you are not preapproved at least, it is extremely unlikely that you will get this sort of lending above a 60% LVR.
 
Key points to note in regards to this are:

• New builds are still exempt, so this becomes a strategy to be able to keep moving without needing the 40% deposit.
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• Lenders such as Resimac and Liberty will become more useful as they don’t have to abide by these restrictions and can continue to do 80% (and in some cases above) funding across the country including Auckland. What is important to understand is that these lenders are not large especially in regards to staff members and are likely to get slammed. I expect that there will be a period of a few months where service levels are not flash, so if this is a funding option you want to look at you will want to look to get preapproved and be allowing at least 10 working days (preferably longer) in regards to getting a property under contract. Note that they are actually reasonably priced with an example of Resimac’s rates as of today at an 80% LVR being:
  • Floating – 5.34%
  • Fixed 1 year – 4.95%
  • Fixed 2 year – 4.99%
  • Fixed 3 year – 5.05%
  • Fixed 4 year – 5.16%
  • Fixed 5 year – 5.27%
• If you have a preapproval and are wanting to get into the investment market and do not have the ability to come up with a 40% deposit and the above exclusions are not of interest, then you need to try and find something suitable quickly as you will not be able to get your preapproval rolled. If you have a preapproval with us we will be looking to get an email out elaborating on this further.
• If you have 2 properties with the same lender and are looking to sell one, note that there is a strong chance that the bank will require the LVR against the remaining property to be kept at 60% LVR, meaning that they may take more of the sales proceeds than what you are expecting. If you are selling get your Solicitor to request what discharge amount will be required.
• If you have 2 properties with the same lender and are refinancing one away while the new lender is likely to honour an approval, the existing funder may cause issues as above by requiring more funds to be repaid to keep the LVR at 60%. Be especially careful if you are doing this process as part of releasing funds to get another purchase across the line, as you may get a nasty surprise if you can’t get the funds released.  Again refer to your Solicitor to request how much will need to be repaid.
• As always this is a valid reason why we recommend split banking. If you are not sure what we mean by split banking download our ONE BANK TRAP ebook.
• Be careful with trading at this stage as we have noticed that with the previous RBNZ restrictions that they have resulted in the market slowing down for a period, meaning it may take longer to offload the stock.
• On the flipside we have seen a number of investors manage to get some really good deals straight after the implementation of restrictions, as these tend to make most people procrastinate for a period of time, so if you are looking to add to your portfolio keep an eye out.

Please note in regards to service levels that we are currently being swamped by phone calls and emails wanting to know how this will effect individual positions. Time is of the essence at the moment as we try and get as many deals across the line before these changes get implemented, so we will continue to make comments on facebook and our blog as the situations do all tend to be generic. However if you feel your situation is out of the box and you are concerned, please do email us and can advise if it is outside the above parameters.