With the roll over of the new year, the Reserve Bank of New Zealand will impose a new change in the current LVR (loan to value ratio) restrictions placed upon banks and lenders. This ease on restrictions was disclosed in the Financial Stability Report released on the 28th November by our central bank.
The report revealed the banks will now be able to increase the total portion of their overall lending to owner-occupiers with a deposit of 20% or less, from 15% of their books to 20%. There is also change to the lending conditions for investors. Investors will now borrow for an investment property with a deposit of only 30%, which is a reduction from the previous 35% deposit requirement.
Reserve Bank Governor Adrian Orr states the reduction in high LVR lending significantly decreases the risks involved in New Zealand’s financial system. This is also the case with the slowing down in household lending and interest-only lending rates declining. He goes on to claim they will continue to loosen the LVR restrictions “so long as the risks continue to diminish”.
So, what does this mean for you?
The new requirements allow banks to loan to 20% of people wanting lower than normal deposit lending. When you make a deposit of less than 20% your LVR becomes higher, which may make you more susceptible to a financial shock than those with a lower LVR.
This new change in rules does not automatically mean you can borrow with a lower deposit or equity, it purely means that banks are now able to provide this higher LVR to a slightly greater percent of people wanting to acquire low deposit lending.
Therefore, this ease in the ‘loan to value’ restrictions will soon make it easier for more people to have the opportunity to obtain mortgage lending, especially in higher priced property markets such as Auckland and Wellington regions. However, the large mortgage debt will still leave individuals vulnerable to economic shocks and high LVR lending is not guaranteed.
If you have any further questions call our mortgage desk on 04 978 8120.