In an effort to slow down the highly charged property market, particularly in Auckland, the Reserve Bank has introduced certain restrictions around Bank property lending. These restrictions have caused uncertainty, decreased competition at auctions and have meant investors are buying in other areas such as Hamilton, Tauranga and Whangarei.
Both rental property investors and owner-occupier borrowers are being bitten by the restrictions, which started in October 2013 and have been tightening ever since.
Before you look at ways to work around these restrictions, you have to understand what they mean and find out how they may affect you.
What are the Changes to Bank Lending?
The first wave of changes to mortgage lending occurred in October 2013. That’s when the Reserve Bank put a limit on high loan-to-value (LVR) lending in New Zealand. This meant the Banks could only lend up to 10% of their total mortgage lending to borrowers who had less than a 20% deposit. These restrictions were tightened when the new policy changes came into effect in November 2015.
LVR restrictions now come under 3 categories:
- Auckland investor loans
- Other Auckland loans
- Non-Auckland loans
Understanding New LVR Restrictions
For Auckland investors the Banks require borrowers to have a minimum 30% deposit on loans secured against property located within the Auckland Council Area.
When borrowing is secured against a property in Auckland (not an investment property), the loan will fall under the Other Auckland loans category. Under these circumstances, borrowers need to make at least a 20% deposit. Low deposit loan lending under this category is still limited to 10% of a Bank’s total new lending and this is being squeezed even further.
Lastly, non-Auckland loans require borrowers to make at least a 20% deposit. These loans are secured against residential properties falling outside the Auckland council area. High LVR lending is limited to 15% of a Bank’s total new lending for mortgages under this category. Again this is being squeezed further and Banks are not lending to those wanting a high loan to value mortgage when the property is a rental or you, the Customer, already own another property.
Other Changes to Bank Lending
One of the biggest changes recently was the restriction to 70% loan to value for investment mortgages in Auckland and this has been made in an attempt to drop the current 30 to 35% of all property sales going to property investors and not home buyers.
In another attempt to both restrict investment lending and collect due Tax, all buyers and sellers are now required by law to complete and submit a Land Transfer Tax Statement with an IRD number. In the event of the property being sold within two years there may well be a tax liability and the IRD are actively targeting this type of property transaction. This mainly affects property traders and we see it more of a political move than a real attempt to control the market.
Banks have also tightened lending to overseas buyers in an attempt to curb ownership purely for monetary gain. The new changes have caused some confusion and our phones and email have been extremely busy.
Qualified mortgage brokers in Auckland like iLender can bring you a step closer to buying a property of your choice. We don’t have the same lending restrictions as the Banks do, so we can arrange up to 90% of the purchase, depending on your circumstances. Whether you’re looking for a first home mortgage or an investment mortgage, we can assure you of the best rate possible to make your payments more manageable.
All mortgages over 80% loan to value will have either a slightly higher rate or fee’s to compensate the Lender for the higher risk. Our policy is always to provide every means to ownership today, with a review every year to make sure you still have the best possible product – if not we recommend changes.
iLender offers specialist home loan products for the self-employed , customers who can’t make minimum deposits and those with a bad credit history. Instead of trying to figure out what the new policies mean for you, simply tell us what you are looking to do and we’ll come up with a plan. It doesn’t matter if you’re an expat, an overseas buyer, or a recently arrived migrant. We can guide you through all available options and help you find a mortgage structure that’s right for you.
To learn more about our products and services make an enquiry online, or call us on 0800 536 337. Overseas callers dial +64 9 428 5338.