LVR restrictions to be reinstated

LVR restrictions take effect from March 1st, meaning you will need a higher deposit than just a few weeks ago. So what does this mean for you, and will it help cool the housing market?

With effect from March 1st 2021, Mortgage Loan-to-Value Ratio (LVR) rules come back into play. The Reserve Bank eased the restrictions on borrowing in the wake of Covid-19 last year, but the runaway housing market we've (unexpectedly) seen since has caused the Reserve Bank to take action, in an attempt to cool the housing market.

So what does this mean for you?

The deposit required differs depending on whether the loan is secured against a residential investment property, or an owner-occupied residential property.

If you are an Investor, you will now need a 30% deposit. But it doesn't stop there. In May, Investors will require a 40% deposit.

If you are buying a property to live in, you will need a 20% deposit.

There are some exceptions though - if you are building a new property, applying for Kainga Ora’s First Home Loan scheme, or applying for a loan for remediation required to bring a residence up to new building code or rental property standards, you will need a 20% deposit, regardless if it's an investment or a home you'll live in. If you already own a property, the new LVR restrictions will only take effect if you apply for a top-up, or want to move house. Banks will also have very limited appetite for ‘high LVR lending’.

Why have these changes been made?

The property market has boomed in recent months and there is now ‘’concern about the risk a sharp correction in the housing market poses for financial stability. There is evidence of a speculative dynamic emerging with many buyers becoming highly leveraged.’’ Says Geoff Bascand, Reserve Bank deputy governor and general manager of financial stability.

The number of applications being submitted to banks is at an all time high, with some banks reporting a 70% increase on this time last year. There has been a notable rapid increase from investors, and the concern now is that if investor demand continues, it could lead the New Zealand housing market down a potentially unsustainable path. ‘’There are a growing number of indebted borrowers, especially investors, who are now financially vulnerable to house price corrections and disruptions to their ability to service the debt.’’

It's no secret that a major contributing factor to our housing crisis is a shortage of available properties. Whilst a tightening of the LVR restrictions won’t result in an increase in the supply or weakened demand of properties, it is hoped that it will slow the housing market, and in tun bring lower house prices.

What should I do now?

There are a lot of variables that will affect if a bank will or can lend to you, so the best thing to do is get advice and assistance before you start your application. We work closely with all of the main banks and some non-bank lenders, so we understand each bank’s lending criteria and what they deem to be a ‘strong application’, meaning we can find the best fit for you. 

If you have been pushed out of the market by the latest LVR changes, we can help you put a financial budget together and explore ways of getting your KiwiSaver working harder, to raise a deposit faster. If you are an existing home owner, we can also outline the ways you can leverage against your existing properties, meaning you need less cash deposit for your future property purchases.

Talk to us if you have any questions or concerns about applying for a mortgage.