It is widely known that in October 2013 the Reserve Bank Governor (Graeme Wheeler) introduced restrictions on Banks mortgage lending over 80% of the LVR (loan to valuation ratio).
Graeme’s motivation was to cool the housing market due to house price inflationary stimuli and recent commentary suggests the strategy has largely worked. However it has come at a cost to first home buyers but benefited the property investor (probably not what the Governor wanted).
In December 2013 the Reserve Bank Governor brought in an exemption to the LVR restriction. New residential construction loans were now exempt and since December this exemption has greatly assisted the new home/construction sector.
Notwithstanding the exemption, the Banks continued to take a very cautious approach to lending above 80%. On the RBNZ website it confirms over the last few months Banks could have leant more than they did. Whilst their ‘quota’ is up to 10% of all loans; lending above 80% LVR was just over 5%.
The Banks now appear to have more appetite in this space – now their systems are set up to lend more but still be under the 10 percent threshold of their total lending over a three month period for the main banks and a six month period for smaller banks.
One Bank has announced that they will charge a Low Equity Premium (LEP) only above 90% LVR and interest rates are no longer at a premium between 80-90% LVR. So the signs are definitely there that more business is available now.
However the LVR restrictions will still result in limited availability of funding above 80 percent and more thought has gone into how to qualify for loans “under 80% of LVR.
Support from friends or family by means of a loan, guarantee or gifting are possible solutions to improving the LVR. One Bank has gone as far as running ‘educational’ seminars.
Another option that may work for suitable borrowers; is taking first and second mortgages through ‘non-bank’ lenders. Whilst this may sound expensive it is not necessarily so you need to speak to a expert mortgage broker like Kris Pedersen Mortgages.
With ‘main Banks’ normally charging a LEP and/or higher interest rates above 80% LVR; the cost comparison is competitive. Often these lending arrangements can be short term too with the ability to re-finance to a main Bank once the LVR drops to under 80%. These are some of the conditions that can assist you: property values rising, home improvements, buying below market value and loan principal reduction.
Interest rates are on the rise. This ultimately has a direct effect on affordability.
Banks test capacity to service off a ‘qualifying’ interest rate. Last year that rate was about 6.5% but now is close to 1% higher – making it 7.5%. Borrowers need to factor future interest rate rises into their own calculations to satisfy all concerned that they can afford loan repayments.